Q&A #114 – What happens if a nonprofit fails to hold regular Board meetings?

Question: I serve on the Board of a small family foundation that has become inactive. The Board of Directors has not formally held a meeting in several years, although the organization’s Bylaws requires the Board to meet at least annually. What are the consequences of failing to hold annual Board meetings?

Answer: Failure to hold regular Board meetings as required in the organization’s Bylaws is a problem but usually does not trigger immediate consequences by itself. However, this is often a sign of deeper neglect or compliance failures inside the organization and will not reflect well on the Board members in the event of an internal dispute, lawsuit, government investigation, or financial statement audit.

It is very common for nonprofits to specify in their Bylaws that the Board of Directors must meet at least once per year (some Bylaws require the Board to meet more often, for example quarterly), and these requirements are consistent with recommended best practices.

State nonprofit corporation statutes usually do not specify a required meeting frequency for the Board (but check applicable law to be sure), so the Board meeting frequency is usually part of an organization’s own internal rules rather than a specific legal requirement. Note that state law often requires membership organizations to hold member meetings at least annually, but nonprofits are typically allowed more discretion with respect to Board meetings.

The direct consequences of a failure to hold regular Board meetings as required in the organization’s Bylaws are rather limited. For example, an aggrieved Board member or officer could potentially seek a court order to force the Board to meet in compliance with its Bylaws.

The indirect consequences of Board inaction are usually the bigger concern, as failure to meet regularly tends to be perceived as a sign that Board members have failed to satisfy their fiduciary duties to responsibly oversee the organization. This can be a damaging piece of evidence in the event other problems are uncovered, especially in the context of an internal dispute, lawsuit, government investigation, or financial statement audit.

Planning Tip – Make a note of Bylaws provisions with which the organization has had difficulty complying when doing your periodic review and assessment of the Bylaws. Determine whether the failure to comply indicates a deficiency in corporate governance practices that needs to be improved or whether the provision at issue is simply not a good fit for the organization. Unless the provision is required by applicable law or strongly advisable as a matter of best practices, the organization might be better off amending the Bylaws to set a more achievable standard.

In any case, the best remedy for this type of Bylaws violation is simply to start meeting regularly and adhering to basic corporate formalities going forward, even if the organization is in a quiet period of inactivity.

If you have a question you would like to submit to SE4N, send it to us using the contact form and we will consider answering it in a future post. Please do not send confidential information.