0
Charity & Nonprofit
BOARD SERVICE
IN WASHINGTON STATE
A QUICK GUIDE
Presented by:
R
evised January 2023
Washington State Office of the
ATTORNEY GENERAL
1
Guide for Charity or Nonprofit Board Service
Presented by
The Office of the Secretary of State and the Attorney General’s Office
The Office of the Secretary of State and the Office of the Attorney General have
prepared this Quick Guide for Board Service to help board members understand
their responsibilities as stewards of their organizations. Under Washington law,
board members of a Washington nonprofit organization are responsible for the
management of the business and affairs of the organization. This does not mean
that board members are required to manage the day-to-day activities of an
organization or to act in the role of an Executive Director. It does mean that
they must appoint officers and assign responsibilities to them so that the officers
can effectively carry out the daily tasks of running the organization. It also
means that board members must supervise and direct the officers and govern
the organization’s efforts in carrying out its mission. In carrying out their
responsibilities, the law imposes on board members the fiduciary duties of care,
loyalty and obedience to the law. Washington courts have held that the law
imposes the highest standard of integrity on the bearers of these duties.
This Quick Guide for Board Service is only a guide and is not meant to prescribe
the exact manner that board members must act in all situations. It is not a
substitute for legal advice. Each organization possesses a distinct composition
and experiences different circumstances and outcomes. This guide is provided
only as a reference tool to assist board members in performing their duties. It
does not contain all of the provisions, exceptions, limitations and requirements
of the law. For the exact requirements of the law, please refer to the source of
the law itself. Many of the guidelines in this publication are taken from the
Washington Nonprofit Corporation Act, located in the Revised Code of
Washington (RCW), Chapter 24.03A.
Board members of Washington state nonprofit organizations must discharge
their duties in good faith, in a manner that each member reasonably believes to
be in the best interests of the organization, and with the care that an ordinarily
prudent person in a like position would exercise under similar circumstances.
Good governance requires the board to balance its role as an oversight body
with its role as a force supporting the organization.
2
Under well-established principles of nonprofit corporation law, a board director
must meet certain standards of conduct and attention in carrying out his or her
fiduciary responsibilities to the organization. Several states have statutes
adopting some variation of these duties that a court of law would consider to
determine whether a board director acted improperly. These standards are
usually described as the Duty of Care, Duty of Loyalty and Duty of Obedience.
Duty of Care:
The Duty of Care describes the level of competence that is expected of a board
director and is commonly expressed as the duty of "care that an ordinarily
prudent person would exercise in a like position and under similar
circumstances." (See RCW 24.03A.495) This means that a board director ow
es
the duty to exercise reasonable care when he or she makes a decision as a
steward of the organization.
1. A
ctive Participation. A director should actively participate in the
management of the organization including setting direction, attending
meetings of the board, evaluating reports, reading minutes, reviewing
the performance and compensation of the executive director and so on.
Persons who do not have the time to participate as required should no
t
a
gree to serve on a board.
2. Committees. A board of directors may establish committees and may
rely on information, opinions or reports of these committees.
Committees operate subject to the direction and control of the board.
As a result, board members are still responsible for the committees and
should periodically scrutinize their work.
3. Board Actions. A board member who is present at a meeting when an
action is approved by the entire board is presumed to have agreed to
the action unless the member (1) objects to the meeting because it was
not lawfully called or convened and doesn’t otherwise participate in the
meeting; (2) votes against the action; or (3) is prohibited from voting on
the action because of a conflict of interest. Normally, the minutes will
record such objections to create a record of the dissent.
4. Minutes of Meetings. Written minutes should be taken at every board
meeting, by someone other than the chair. The minutes should
accurately reflect board discussions as well as actions taken at meetings.
3
The minutes should be reviewed and approved by all board members by
the next board meeting.
5. B
ooks and Records. A board member should have general knowledg
e
o
f the books and records of the organization as well as its general
operation. The organization’s articles, bylaws, accounting and
m
embership records, voting agreements and minutes must be made
available to board members who wish to inspect them for a proper
purpose.
6. A
ccurate Record Keeping. The board of directors should not only be
familiar with the content of the books and records, but should also
assure that the organization’s records and accounts are accurate. The
board is ultimately responsible to ensure that internal controls are
adequate to safeguard the organization’s assets and help prevent fraud.
This also means the board might take steps to require regular financial
audits by an independent certified public accountant. At the very least,
the board should be aware of what the financial records disclose
.
Man
y boards determine that an effective way to achieve adequate
financial oversight is to appoint a Finance Committee that includes a
t
least one member with a background in finance to focus on the financial
details and report to the full board. Often, the treasurer of the board
chairs this committee and the appointed members can include people
who are not on the board.
7. Assets. The board of directors has the duty to protect, preserve, invest
and manage the corporation’s assets and to do so in a manner consisten
t
w
ith the organization’s mission, donor restrictions, and legal
requirements. Oversight of appropriate internal controls will aid in the
protection of assets and the prevention of fraud.
8. Res
ources. The board of directors should assist the organization in
obtaining adequate resources to enable it to further its mission.
9. C
haritable Trusts. A trustee of a charitable trust has a higher standard
of care than a director of a nonprofit corporation. A trustee has the duty
to exercise the care that an ordinary person would employ in dealing
with that person’s own property. A trustee with a greater level of skill
must use that higher skill in carrying out the trustee’s duties.
4
10. Investigation. The board of directors has a duty to investigate warnings
or reports of officer or employee theft or mismanagement. The board
should adopt procedures to handle reports of inappropriate uses
of
r
esources or inaccurate reporting of financial affairs. These procedures
should include protections for anyone reporting the possibility of such
damaging activities. In some situations the board may have to report
misconduct to the appropriate authorities, such as the police or the
Attorney General. Where appropriate, a director should consult an
attorney or other professional for assistance. The board as a whole may
also seek such advice when needed to assist the members in dealing
with a difficult situation.
D
uty of Loyalty:
The duty of loyalty is a standard of faithfulness; a board member must give
undivided allegiance when making decisions affecting the organization. This
means that a board member can never use information obtained as a member
for personal gain, but must act in the best interests of the organization.
1. Conflicts of Interest. Under certain circumstances, a contract or
transaction between a nonprofit corporation and a board member or an
organization in which a board member has a material financial interest is
acceptable. However, if the transaction is challenged, the board member
will have the burden of establishing that the contract or transactions was
fair and reasonable, that there was full disclosure of the conflict and that
the contract or transaction was approved by other board members in
good faith.
2. W
ritten Policy. Boards should establish a written policy on avoiding
conflicts of interest.
3. L
oans. Washington State law disfavors a nonprofit corporation making a
loan to a board member or the board member’s family members. If a loan
is made, all officers and board members who participated in making the
loan will be liable for the amount until the loan is repaid.
5
4. Charitable Trust. In charitable trusts, transactions which otherwise might
c
onstitute a conflict of interest are permissible if the conflict was clearly
contemplated and allowed by the original settlor of the trust.
5. Corporate Opportunity. Board members of business organizations are
un
der a fiduciary obligation not to divert a corporate business opportunity
for their personal gain. A board member of a nonprofit corporation is also
subject to this duty. This duty means that a board member may not
engage in or benefit from a business opportunity that is available to and
suitable for the corporation unless the corporation decides not to engage
in the business opportunity and conflict of interest procedure is followed.
6. Internal Revenue Code. Other prohibitions relating to the duty of loyalty
are specified in the rules of the Internal Revenue Code regarding self-
dealing. These rules apply to private foundations.
Duty of Obedience:
The duty of obedience requires the board of directors to be faithful to the
organization's mission. They are not permitted to act in a way that is inconsistent
with the central goals of the organization. A basis for this rule lies in the public's
trust that the organization will manage donated funds and other resources to
fulfill the organization's mission.
1. Federal, State and Local Statutes. Board members should be familiar
with federal, state and local laws relating to nonprofit corporations,
charitable solicitations, sales and uses taxes, FICA (Social Security) and
income tax withholding, and unemployment and worker’s compensatio
n
obligations. They should also be familiar with the requirements of the
Internal Revenue Service (See Attachment A). Directors should see to it
that their organization’s status with federal, state and local agencies is
protected and current.
B
oard members should assure themselves that the provisions of the
Internal Revenue Code applying to 501(c)(3) organizations have been met
before advising donors that their contributions may be tax deductible.
2. Fili
ng Requirements. Board members must comply or assure compliance
with deadlines for tax and financial reporting, for registering with the
Secretary of State, for making Social Security payments, for income tax
6
withholding and so on. Additionally, if an organization is incorporated, its
directors have a duty to maintain its corporate status by submitting or
assuring submission of timely filings to the Office of the Secretary of State.
I
f the organization conducts fund raising activities, a separate annual
Charitable Solicitation Report may be required. See RCW 19.09.065
a
nd
the information about the Charitable Solicitations Act on the Secretary of
State’s website at https://www.sos.wa.gov/corporations-c
harities for
details.
3. G
overning Documents. Board members should ensure that the
organization’s mission is being accomplished in accordance with the
stated purpose in the organization’s articles of incorporation. T
hey should
be familiar with their organization’s governing documents and should
follow the provisions of those documents. Board members should be sure
that proper notice is given for meetings, that regular meetings are held,
and that members are properly appointed or elected.
4. Outside Help. Where appropriate, board members should obtain
opinions of legal counsel or accountants.
I
n addition to the three general fiduciary duties (Care, Loyalty and Obedience),
there are several specific responsibilities that should be observed by the board
of directors.
Reducing the Risk of Liability
A
lthough lawsuits against board members of nonprofit corporations occur less
frequently than those against board members of for-profit business
corporations, they are not unknown. Recent widespread publicity and, in some
cases, criminal convictions have highlighted the fiduciary role of board members
and officers of nonprofit organizations.
7
It is possible that board members of a charitable/nonprofit corporation will find
themselves sued as personal defendants in a lawsuit filed by an “outside third
party” that has incurred some personal injury or financial loss as a result of
dealings with the organization. To encourage citizens to serve as board
members for charities, the law cloaks volunteer board members with qualified
immunity. (See RCW 24.03A.540
) They cannot be sued for negligent acts. They
may, however, be subject to lawsuits alleging that a loss was due to their gross
negligence, willful or fraudulent acts.
NOTE –
The IRS may also hold board members personally liable if the
organization violates federal tax law. The most likely situation is the failure of
the organization to perform mandatory payroll withholding.
Because there is some degree of risk, including the cost of defending a frivolous
c
laim, board members should discuss with the organization’s legal counsel the
prospect of purchasing Directors and Officers (D & O) liability insurance
, and/or
including indemnification provisions in the organization’s governing documents.
The organization should carry insurance appropriate to its activities (including,
f
or example, general liability, errors and omission, automobile or malpractice)
in amounts to meet its needs. The absence of appropriate insurance may cause
an injured person to seek recourse from board members. If adequate insurance
is in force, an injured person is less likely to seek damages from a board member.
Federal Guidelines for Governance,
Management and Disclosure
The federal government has prescribed that certain governance practices are
desirable for non-profit entities that have federal tax-exempt status. While they
are not required by law, the federal Return of Organization Exempt from Income
Tax (Form 990) does require disclosure as to whether or not these practices are
in place. Potential donors may consider the absence of these features as
indications that the organization is not well run. Please refer to the applicable
questions that are included in Attachment A.
8
Attachment A
nonprofitwa.org ©2022 Nonprofit Association of Washington. All rights reserved.
Board Standards in Washington State
Introduction
This document provides an overview of key standards for charitable, nonprofit,
non-membership boards under state law, the Washington Nonprofit Corporation Act, effective
January 1, 2022. It is intended to provide general guidance about requirements for self-electing
boards. It also focuses on charitable nonprofits: nonprofits that are operated primarily or
exclusively for one or more charitable purposes that would qualify the organization for tax-
exempt status under Section 501(c)(3) of the Internal Revenue Code. This document does not
address membership nonprofits or federal law (see the Washington Nonprofit Handbook for more
information).
Read more:
The Washington Nonprofit Corporation Act: RCW (24.03A)
Definitions: RCW 24.03A.010(5)&(6)
This information is provided so that all nonprofit leaders can understand the key state legal
requirements for nonprofit boards. Some readers may be surprised that some conventions which
they assumed to be legal requirements are actually optional. For boards interested in innovating
or distributing leadership more broadly within their organization, it may be freeing to learn that
some responsibilities can be delegated to staff or advisory committees, or that the law does not
mandate the use of a specific decision-making method. This information can be used to determine
what work the board must do, and what can be delegated, shared, or done by others. For more
information on alternative leadership, see the Alternative Leadership Toolkit.
Disclaimer
This document is for educational purposes only. It is not meant to be comprehensive, and in no
way will this content be considered legal, business, or professional advice or counsel. It also does
not create an attorney-client relationship. For legal advice, please contact a licensed attorney.
In general, state law defines the parameters of board standards, and bylaws can be tailored within
the parameters. If a nonprofit’s bylaws are silent on an issue, the Washington Nonprofit
Corporation Act will provide the default standard. This document uses the terms “board
members” and “directors” interchangeably.
This document was prepared in partnership with Communities Rise and made possible by the support of the
Washington State Office of the Secretary of State.
Attachment B
9
Board Standards in Washington State
nonprofitwa.org Page 2
Board Members/Directors
● Board members/directors must be individuals and do
not need to be residents of Washington State. Bylaws
can add additional qualifications as agreed upon by
the current board members.
● 501(c)(3) public charities must have at least 3 board
members.
● Youth under the age of 18 may serve on a board. A
board may have either 3 youth directors, or ⅓ of the
total number directors on the board may be youth –
whichever number is fewer.
● The default board term length is 1 year, unless bylaws
state differently. The maximum board term length for
board members elected by other board members is
5 years.
● The law does not have a maximum or ceiling for the
number of terms a director can serve. Bylaws may
specify term limits.
● A board member may resign at any time orally at a
board meeting or in writing to the president, secretary
or another designated officer, as stated in the
organization’s bylaws.
● If a director’s term has expired, the director with the
expired term serves until their successor is chosen,
unless bylaws state differently
● The procedure for removing a board member does
not need to be included in bylaws. See the law for
specific information.
Officers
● Required officers are president, secretary and
treasurer. The office of vice president is not required.
● Two offices may be held by the same individual,
except the offices of president and secretary must be
held by different people.
10
Board Standards in Washington State
nonprofitwa.org Page 3
Committees
● Board committees may have delegated authority
from the board to make decisions, for example, an
Executive Committee. There must be a minimum of
2 board members, and only board members may
serve as voting committee members.
24.03A.575(1)&(4)
● There are many things a board committee cannot do:
authorize distributions, change bylaws or articles,
make decisions on who is a board member or board
committee member, authorize a substantial change
to the organizational structure (such as merger,
selling a substantial amount of assets, dissolution,
etc.), or change a board resolution unless allowed by
a board resolution.
24.03A.575(5)
● Advisory committees do not have delegated authority
from the board and cannot make a decision on behalf
of the board. They make recommendations and
provide information to the board or do work not
required to be done by the board, such as organizing
an event, recruiting volunteers, or developing a
program evaluation. Anyone from the community
may serve on such a committee, unless otherwise
stated in the bylaws.
24.03A.575(7)
Decision-making
● If not included in bylaws, a quorum is a majority of
board members in office before a meeting starts.
Bylaws can provide for a higher quorum requirement
(like consensus), but bylaws cannot allow for a
quorum to be fewer than ⅓ of the number of directors
on the board. A quorum is required to make
decisions.
24.03A.565(1)
24.03A.565(2)
● The law does not allow board members to appear by
proxy (allowing someone else to act for them).
24.03A.565(5)
● A written vote by email or other written record can
only happen if there is 100% participation of all non-
conflicted board members, and every board member
affirmatively agrees to the proposed action.
24.03A.570
● A board may conduct meetings through the use of
one or more means of remote communication (such
as Zoom or conference call software) through which
all of the directors may simultaneously participate
with each other during the meeting.
24.03A.550
11
Board Standards in Washington State
nonprofitwa.org Page 4
Fiduciary Duties or Standards of
Conduct
● When serving on a nonprofit board, board directors
and officers have duties of care, obedience, and
loyalty to the nonprofit. Directors and officers must
act 1) in good faith (doing what’s honest, fair, and
legal), 2) with the care an ordinarily prudent person
in a similar position would take under similar
circumstances, and 3) in a way that the director or
officer reasonably believes to be in the nonprofit’s
best interests.
24.03A.495(1)
24.03A.590(1)
● Both board directors and officers, in taking board
action, may rely on the advice of or information
provided by experts such as a CPA, attorney, qualified
staff, or other professionals.
24.03A.495(3)
24.03A.590(3)
● Board officers also have a duty to tell their superiors
or the board as a whole information that is known to
be material (important), and information about
violations of law or breaches (violations) of duty.
24.03A.590(2)
Updated July 7, 2022
12
13
Attachment C
Twelve Principles of Governance That Power Exceptional Boards
Excerpted with permission from Boardsource
Exceptional boards add significant value to their organizations, making a discernible difference in their
advance on mission. Good governance requires the board to balance its role as an oversight body with its
role as a force supporting the organization. The difference between responsible and exceptional boards
lies in thoughtfulness and intentionality, action and engagement, knowledge and communication. The
following twelve principles offer chief executives a description of an empowered board that is a strategic
asset to be leveraged. They provide board members with a vision of what is possible and a way to add
lasting value to the organization they lead.
1. CONSTRUCTIVE PARTNERSHIP
Exceptional boards govern in constructive partnership with the chief executive,
recognizing that the effectiveness of the board and chief executive are interdependent.
They build this partnership through trust, candor, respect, and honest communication.
2. MISSION DRIVEN
Exceptional boards shape and uphold the mission, articulate a compelling vision, and
ensure the congruence between decisions and core values. They treat questions of
mission, vision, and core values not as exercises to be done once, but as statements of
crucial importance to be drilled down and folded into deliberations.
3. STRATEGIC THINKING
Exceptional boards allocate time to what matters most and continuously engage in
strategic thinking to hone the organization’s direction. They not only align agendas and
goals with strategic priorities, but also use them for assessing the chief executive, driving
meeting agendas, and shaping board recruitment.
4. CULTURE OF INQUIRY
Exceptional boards institutionalize a culture of inquiry, mutual respect, and constructive
debate that leads to sound and shared decision making. They seek more information,
question assumptions, and challenge conclusions so that they may advocate for
solutions based on analysis.
5. INDEPENDENT-MINDEDNESS
Exceptional boards are independent-minded. They apply rigorous conflict-of-interest
procedures, and their board members put the interests of the organization above all else
when making decisions. They do not allow their votes to be unduly influenced by loyalty
to the chief executive or by seniority, position, or reputation of fellow board members,
staff, or donors.
6. ETHOS OF TRANSPARENCY
Exceptional boards promote an ethos of transparency by ensuring that donors,
stakeholders, and interested members of the public have access to appropriate and
accurate information regarding finances, operations, and results. They also extend
transparency internally, ensuring that every board member has equal access to relevant
materials when making decisions.
14
7. COMPLIANCE WITH INTEGRITY
Exceptional boards promote strong ethical values and disciplined compliance by
establishing appropriate mechanisms for active oversight. They use these mechanisms,
such as independent audits, to ensure accountability and sufficient controls; to deepen
their understanding of the organization; and to reduce the risk of waste, fraud, and
abuse.
8. SUSTAINING RESOURCES
Exceptional boards link bold visions and ambitious plans to financial support, expertise,
and networks of influence. Linking budgeting to strategic planning, they approve
activities that can be realistically financed with existing or attainable resources, while
ensuring that the organization has the infrastructure and internal capacity it needs.
9. RESULTS-ORIENTED
Exceptional boards are results-oriented. They measure the organization’s progress
towards mission and evaluate the performance of major programs and services. They
gauge efficiency, effectiveness, and impact, while simultaneously assessing the quality of
service delivery, integrating benchmarks against peers, and calculating return on
investment.
10. INTENTIONAL BOARD PRACTICES
Exceptional boards purposefully structure themselves to fulfill essential governance
duties and to support organizational priorities. Making governance intentional, not
incidental, exceptional boards invest in structures and practices that can be thoughtfully
adapted to changing circumstances.
11. CONTINUOUS LEARNING
Exceptional boards embrace the qualities of a continuous learning organization,
evaluating their own performance and assessing the value they add to the organization.
They embed learning opportunities into routine governance work and in activities
outside of the boardroom.
12. REVITALIZATION
Exceptional boards energize themselves through planned turnover, thoughtful
recruitment, and inclusiveness. They see the correlation between mission, strategy, and
board composition, and they understand the importance of fresh perspectives and the
risks of closed groups. They revitalize themselves through diversity of experience and
through continuous recruitment.
# # #
Excerpted with permission from www.boardsource.org. For more information about BoardSource, visit
www.boardsource.org or call 800-883-6262. BoardSource (c) 2010.
Text may not be reproduced without written permission from BoardSource.
15
Attachment
D
HELPFUL COMPLIANCE INFORMATION FOR CHARITIES AND NONPROFITS
Office of the Secretary of State
Corporations & Charities
Financial information on registered
charities or the registration of
charities and commercial fundraisers
Telephone: (360) 725-0377
Toll-Free: (800) 332-GIVE
(Washington only)
www.sos.wa.gov/corporations-
charities/
Washington State Office of the
Attorney General
Consumer Protection Division
Charitable Asset Protection Team
The AG is the regulatory agency for
nonprofits and for charities that are
soliciting in the state of Washington.
Telephone: 206-464-7744
E-mail: charities@atg.wa.gov
Nonprofit Association of
Washington (NAWA)
State association for all nonprofits
in Washington; offers affordable
board education and resources for
running a nonprofit
www.nonprofitwa.org
855-299-2922
Business Licensing Services
Master Licensing Service
Business License
Telephone: (800) 451-7985
www.bls.dor.wa.gov
Department of Revenue
Washington State taxpayer services
(Annual Reporting, Exemptions,
Excise, sales, B&O taxes, etc.)
Telephone: (800) 647-7706
www.dor.wa.gov
Washington State
Gambling Commission
For those nonprofit organizations
that hold raffles, bingo, casino or
other games of chance.
Telephone: (360) 486-3440
www.wsgc.wa.gov/
Washington State
Liquor Control Board
For those nonprofit organizations
se
eking a special license to raffle or
sell liquor at specified date, time and
place.
Telephone: (360) 664-1600
www.liq.wa.gov/
Internal Revenue Service For Exempt Organization Division
Telephone: (877 )829-5500
www.irs.gov/charities
Communities Rise
For assistance in organizational
capacity-building in Washington
state
(Communities Rise is a Washington state
nonprofit corporation.)
Telephone: (206) 324-5850
www.communities-rise.org/
Washington Nonprofit Handbook
(Communities Rise Publication)
Handbook providing guidance on
many
legal issues facing nonprofit
organizations in Washington state
Washington Nonprofit Handbook
www.sos.wa.gov/sites/default/files/2022-
09/2022-Nonprofit-Handbook.pdf