Nonprofit Legal & Ethical Considerations Flashcards

A nonprofit board is considering a resolution that would directly benefit a board member's company. Under the duty of loyalty, the affected member should:

Answer: Abstain from discussion and voting, and leave the room if required by policy

The duty of loyalty requires board members to disclose conflicts and recuse themselves from related decisions, including leaving the room to allow free deliberation.

Under state nonprofit corporation law, which duty requires board members to make decisions based on reasonable inquiry and adequate information?

Answer: Duty of care

The duty of care requires board members to act in good faith, with the care an ordinarily prudent person would exercise, and on the basis of reasonably available information.

Which of the following activities would most likely jeopardize a 501(c)(3) organization's tax-exempt status?

Answer: Endorsing a specific candidate for public office

501(c)(3) organizations are absolutely prohibited from participating in or intervening in any political campaign on behalf of or in opposition to any candidate.

A charity solicitation law in most U.S. states requires nonprofits soliciting donations from the public to:

Answer: Register with the state attorney general or a charitable solicitation office

Most states require nonprofits to register with a state regulatory agency before soliciting donations from residents of that state.

The 'duty of obedience' in nonprofit governance primarily requires board members to:

Answer: Ensure the organization adheres to its stated mission and legal requirements

The duty of obedience requires board members to ensure the organization stays true to its mission and complies with applicable laws, regulations, and its own governing documents.

A nonprofit that receives federal funding must comply with the Uniform Guidance (2 CFR Part 200), which governs:

Answer: Administrative requirements, cost principles, and audit requirements for federal awards

The Uniform Guidance consolidates federal requirements for grants management, including allowable costs, internal controls, and single audit requirements for organizations spending $750,000 or more in federal funds annually.

When a nonprofit accepts a major gift with donor-imposed restrictions, those restrictions create:

Answer: A legal obligation to use the funds only as the donor specified

Restricted gifts create a legally binding obligation under charitable trust law to use the funds only for the purpose specified by the donor.