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A lawsuit is something nobody wishes to face. For nonprofits, the legal landscape for personal liability is even more complex than for most businesses. Members of a board of directors or founders of nonprofit organizations may not be entitled to the same protections from personal liability that other business executives enjoy. It is important to understand how this liability works and consult with legal counsel for specifics.

The Question of Incorporation

One of the primary facets of personal liability is whether or not the nonprofit is incorporated. Incorporated status automatically protects executives, directors, and founders from personal liability. A lawsuit may be leveled against the nonprofit itself for various accidents, injuries, or businesses losses, but individuals are generally protected – with a few exceptions. This is one major reason for a nonprofit to consider incorporating to protect its members.

If the nonprofit is incorporated, any judgments against the organization become debts of the nonprofit. If the nonprofit is unincorporated, then a payment for a judgment could be sought from the directors’ own pockets. This could potentially put personal assets, such as savings accounts and even homes and property, at risk of being liquidated to settle the debt. There is a risk of bankruptcy. These risks have deterred many individuals, especially those with large assets, from serving on boards of directors of unincorporated nonprofits. The good news is that the number of individuals actually sued in these situations is quite small. The choice often comes down to whether the individuals or the nonprofit itself is in a better position to the pay the judgment.

Using Waivers as Protection

If incorporation is not an option for the nonprofit, it may wish to take legal steps to protect itself and its members from liability. The best way to do this is through liability waivers. A liability waiver may be required of volunteers to prevent them from suing the nonprofit for a work-related injury. The waiver may also be presented to those interacting with the nonprofit or using its services to prevent professional liability claims.

Waivers often cannot protect against every possible liability. They also run the risk of alienating or deterring potential volunteers and customers, but they can often protect the nonprofit form the most likely and most expensive liabilities.

Using Insurance as Protection

Another form of protection that should be sought whether the nonprofit is incorporated or not is liability insurance. Insurance can provide protection to both the nonprofit and its directors and founders, because it is easier to claim money from insurance than from an individual’s or organization’s own pocket. While this adds to the nonprofit’s monthly expenses, it is an extremely important protection.

Insurance is effective because of the fact that most lawsuits end in settlement. Insurance represents an easy and quick payout whereas targeting an individual will likely result in a long and slow collections process. Even if personal liability is possible and even if the judgment could exceed insurance amounts, a settlement often will not. If nothing else, the insurance will cover the major share of costs, leaving individuals and the corporation with less worry.

Most organizations will have general insurance. Depending on risk, it may be worthwhile to purchase specific liability insurance in addition to general insurance to ensure full coverage.

Exceptions to Personal Liability

Even if every possible protection is in place, there are certain situations that will leave directors or founders personally liable. These are often very case-specific and are based on the intentional individual wrongdoing of the person involved.

There are three major personal liability concerns that will open a person up to a lawsuit even if they have standard protections:

– The person directly or intentionally injures someone.
– The person intentionally commits a crime, does something fraudulent or otherwise illegal, and      that act directly results in harm and loss to another person or the organization itself.
– The person co-mingles personal funds and nonprofit funds. For example, depositing their own money in the nonprofit account, having a joint account, or allowing an account to be used for both their personal expenses and the nonprofit’s.

Any money in a joint account could be used for liability debts even if the major share of it is personal money.

The Importance of State Laws

Some states offer special protections to nonprofits, directors, founders, and volunteers. These laws give such individuals extra liability protection, even if their nonprofit is unincorporated and even if they do not have basic protections such as waivers or insurance. While organizations should not rely solely on these special state laws for protection, they can help, and it is always a good idea to be aware of them.

Special Considerations for Unpaid Taxes

While most nonprofits are tax exempt in some categories, they may still have some form of tax obligations. This category of liability deserves special mention because it is both often overlooked and the most common type of liability to actually affect directors.

This tax liability often results from a death spiral. A nonprofit may find itself financially strapped and unable to pay taxes. The nonprofit may ultimately fail and leave those taxes unpaid with no money remaining to pay them. The IRS has the authority in this situation to pursue collections against board members and founders. Most legal protections that prevent board members from suffering liability does not protect them against the IRS. Even insurance is unlikely to cover tax liability.

Armed with Knowledge

The best defense any nonprofit director or founder has is knowledge. There is risk involved in becoming the director or founder of an unincorporated nonprofit, but this risk can be minimalized with the right understanding of liability.

A skilled director or board will ensure the right protections are in place for their valuable members. They will also understand how to prevent a liability situation from occurring in the first place. It may not be possible to prevent every situation, but most serious liability situations are the result of mistakes or oversights that can be avoided with the right knowledge and planning.

It is important for nonprofits, especially smaller, more vulnerable organizations, to stay on top of liability issues and protections. These protections are not only vital to the organization’s survival but also vital to the retention of top talent. Skilled directors and managers will have an understanding of liability, and they may be unwilling to serve an organization that manages its liability poorly. The risk of personal liability is a poor reason to lose good directors, and it is one that every nonprofit can avoid. Whether the nonprofit is incorporated or unincorporated, large or small, every organization can and should take steps to protect itself and its leaders from liability.

A product liability lawsuit is very specific. It occurs when a product is either defective or dangerous in some way to the point it causes harm to the people who use it. For example, anytime you see a recall from a major vehicle manufacturer in which the news release says something the effect of “So many of this vehicle make and model are being recalled in wake of the startling revelation that the certain product inside the car is the cause of death of at least 7 people,” you can safely assume the manufacturer is facing a product liability lawsuit.

If the vehicle is being recalled voluntarily and no one was injured or killed, the chance a lawsuit is being filed is slimmer. This is not just a problem in the automobile manufacturing industry. From food to toys to every other product on the market, product liability laws are strict. If you are using a product created by a nonprofit organization and it causes harm, you could be entitled to damages from a product liability lawsuit.

What is product liability?

– Manufacturing defects
– Design defects
– Failure to warn
– Product recalls
– Breach of warranty
– Mesothelioma
– Asbestos

These are all common reasons people file product liability lawsuits. Each one is dangerous and has the potential to not only cause injury or harm but to also kill those who use the product. To file a product liability lawsuit, a consumer needs to sue the manufacturer of a product they are able to prove has harmed them or their family in some way.

Manufacturing Defects

A product with a manufacturing defect is dangerous whether it was manufactured by a nonprofit or a major Fortune 500 company. The premise of this problem is a mistake in the manufacturing of an object. For example, if a company manufactures a stroller for twins but accidentally uses screws that are too small, the stroller could fall apart when it’s being used and cause injury to the baby. It was a mistake made when it was being put together, which is what classifies it as a manufacturer defect.

If you want to file a product liability lawsuit citing manufacturer defect, you must be able to prove there was a defect caused in the making of this item. You must be able to prove you were injured, and you must be able to prove that this accident and injury only happened because the company that manufactured the item made a mistake. Otherwise, you would not have suffered this injury.

Defective Design

This is not like a manufacturer defect. A defective design occurs when an item is designed in a way that exhibits dangerous mistakes. For example, if a company designed a pair of sunglasses that don’t actually block the harmful UV rays from the sun, it’s a design defect. The design should have included a way to protect the eyes from those rays so that retina damage does not occur. If you want to file a lawsuit on this basis, you must be able to prove there was an injury and that the injury was directly caused because of a design flaw.

Failure to Warn

Have you ever looked at the back of a package of something you purchased and wondered why such silly warnings are included? For example, Tide Pods are being consumed by teenagers across the country right now, and it’s dangerous. Common sense says this is a terrible idea as Tide Pods are likely made of chemicals no human should ingest. You might wonder why the package reads “Warning: Do not eat,” but it’s because some people just don’t know.

If you decide you want to eat a Tide Pod and there is no warning on the back that it could kill you because of the many dangerous chemicals inside, it’s failure to warn. If the package tells you not to eat it and you eat it anyway, it’s your own fault if you suffer injuries.

Other Instances

The rest of these situations are easily defined. For example, if you realize that you bought a product made with asbestos, you could sue the company for using the ingredient knowing that it’s banned and not safe at all for humans to work with. If a product recall occurs, you know there is an item that could hurt you and you could sue. If the company who makes the item does not honor their own warranty and something happens to you, it could fall into a products liability category.

What You Should Do

There is not a right or wrong answer here. If you suffered injuries because you used a product that harmed you, it doesn’t matter where you got it or how it was made. You are injured because of a product design. If the product was made by a nonprofit organization, you can still sue the company under the realm of product liability. Anyone who takes it upon themselves to create a product and sell it must abide by the laws regarding manufacturing and design. If they fail to do so, they can be sued.

What you’ll get from a nonprofit depends on the success of the company as well as their own insurance company. If their product is properly insured, you can sue the company and deal with their insurance company. The insurance company might try to offer you a deal or a settlement to keep you happy rather than take the case to court, but the decision is ultimately yours.

Call an Attorney

If you are injured or harmed at all by a product designed by a nonprofit, call an attorney for help. You do have rights, and your attorney can help you figure out what those rights are. It’s easier to provide good advice when you know what the specifics of the situation are, and it’s easier for your attorney to move forward with a case when he or she knows what happened, who manufactured or designed the product, and which part of the numerous product liability laws this lawsuit might fall under.

Keep evidence, take pictures, and see a doctor if you are injured. You want to act quickly to be sure you are able to adequately use your evidence. Calling an attorney after you see a doctor is a wise decision, even if you only discuss the case with the attorney and decide you don’t want to move forward. A legal expert is always helpful in a legal situation, and this is no exception.

A nonprofit organization is one in which no profit is assumed by the company. All the proceeds are used to pay employees and the rest goes back into the pockets of others rather than the company itself, which is a fantastic situation. These are typically great organizations that are designed to offer help to those in need as well as benefit those who use the services of the nonprofit. It makes people wonder, though, what kind of liability a nonprofit has if they are employed by or volunteer for the organization and end up hurt on the job. With a traditional job with a for-profit company, the employee can sue for personal injury if their injuries are the result of negligence on behalf of their employer, but what does this mean for those employed by a nonprofit?

Can a nonprofit be sued for personal injury?

Personal injury is everywhere. Someone could fall over a cord that’s lying on the ground while they’re working for, volunteering for, or simply visiting your nonprofit office locations. That person can then sue the nonprofit for personal injury because the cord should not be lying haphazardly in the middle of the floor. A nonprofit can face a personal injury lawsuit whether you are an employee, a volunteer, or a visitor. If you’re considering a lawsuit against a company like this, it’s time for you to understand what it means to file a lawsuit of this nature, what you need to have on hand, and how it works.

Can I Sue for Personal Injury?

If you want to file a personal injury lawsuit against anyone, you need to be able to prove several things. You cannot just say you’re injured, file a lawsuit, and walk away with a large payout from the company. You must be able to prove several key factors:

– You were injured. This is the most important thing you must prove if you plan on filing a personal injury lawsuit. You must have an injury, you must have a doctor’s note confirming your injury, and you must be willing to provide access to the medical records pertaining to your injury since your accident.
– You must be able to prove the nonprofit had a duty to care. This means the nonprofit owes you a duty of care to keep you safe when you are on the premises.
– You must be able to prove the nonprofit breached that duty of care and it resulted in your injuries. It is imperative you are able to prove their breach of duty directly caused you to suffer an injury.

Once you’ve been injured, you must seek medical care immediately. Waiting too long to see a doctor could allow the nonprofit to argue perhaps your injuries are not as serious as you claim, that they were caused by something that happened later and elsewhere, or that they are not to blame for your injuries. Furthermore, your own personal health is reliant upon your visit to the doctor. If you don’t notice a bodily injury, you could still suffer from internal injuries that cause you excessive health issues later.

What Happens after My Injury?

Once you suffer an injury and you contact a doctor, you want to speak to a personal injury attorney. It’s possible to represent yourself in this situation, but it’s never recommended. The laws are strict regarding personal injury lawsuits anywhere you live, and you need to focus on your health and rehabilitation. Your attorney will speak to you regarding your case, help you figure out what to do next, and help you understand how the entire process works.

You could be entitled to damages from the nonprofit if it is their fault you are injured. For example, if you were working for a nonprofit in a building that’s got several leaks. The nonprofit keeps putting off fixing these leaks despite numerous complaints by employees and volunteers and you slip and break your leg, the nonprofit is negligent. You could sue them for damages such as the following:

– Medical expenses from the injuries you suffered
– Pain and suffering
– Lost wages
– Inability to earn the same income

Every case is different. The damages to which you are entitled might differ from the damages someone else is entitled to for a similar accident. You will need to prove that you suffered damages from this accident, but that is an easy task when you have injuries. Your attorney will also help you with the paperwork and the process of handling the insurance company that represents the nonprofit.

For example, you might be asked to sign medical release forms and think nothing of it. You sign those forms and the insurance company is now free to access your medical records, But you might not realize they are free to access your medical records from birth forward. This is their way of trying to figure out if you have any prior medical problems that might make you more susceptible to your injuries. They can argue you had a pre-existing condition that caused your injury rather than the nonprofit’s actions.

You must provide the insurance company with your medical information pertaining to anything that happened since the accident, but you are not required to sign a medical release providing the company access to your lifelong medical records. Your attorney can advise you when you’re being scammed into making poor decisions.

Call an Attorney

You can sue a nonprofit, but you must be able to prove what happened to you is their fault. You cannot sue them if you were not injured because of their negligence, and you cannot sue them if the issue you faced was your own fault. Let’s use the previous example. The nonprofit for which you work has several leaks anytime it rains, and they simply haven’t been able to get it fixed because the contractor hasn’t had time to get the materials in place. The company works to make sure everyone knows there are slick wet floors by placing signs by every leak, taping the areas off, and sending out an in-office memo. If you ignore those signs and the tape, slip and fall and break your leg, the nonprofit is not to blame.

You are to blame, and you cannot sue. Your attorney will tell you this when you call to make an appointment, and they will help you understand why. You do have rights as a person injured at your place of employment, but only within the realm of the law. If you think you can sue a nonprofit for your injuries to help you cover the cost of the medical bills you’re incurring, call an attorney to discuss your rights.

A cornerstone of running any non-profit is the ability to raise money in creative and engaging ways that garner donations and support. A common idea for fundraising events is to create an atmosphere of occasion by offering alcoholic beverages in the form of liquor, wine, and beer. Some organizations see it as an opportunity to raise additional funds through alcohol sales. Others offer adult beverages to attendees so that they are likely to feel – ahem – more generous with their wallets when it comes to making contributions.

Sounds like a win-win for both sides, right? No matter the tactic or motivation, a serious discussion about the offering of alcoholic provisions as a public organization is in order – particularly from a legal aspect. Many board members are keenly aware of the ramifications that may cause the organization, its reputation, and trust fund to fall into complete ruin. Not to mention that the community is losing a valuable, public service.

Examples of potentially hazardous and liability-causing alcohol-fueled incidents may include:

– guests drinking well-above the legal limit, driving home, and getting into a fatal accident;

– social incidents that involve public fighting and someone is knocked unconscious;

– guests walking home, swaying excessively, and being arrested for public drunkenness; or

– even worse.

Considering the scenarios above, who is really at fault for potential fatalities, hospital bills, and legal fees? Many assume the responsibility lies in the hands of the individual who imbibed beyond the legal limit. Unfortunately, it is not always so cut-and-dry.

After weighing the pros and cons, many nonprofit leaders wonder exactly where the organization’s liability ends and personal responsibility begins. On one hand, there is a need to make money to fund new projects and meet budget expectations. On the other, is it really worth it to offer a meaningless beverage when so much is at stake?


Let’s start with the basics. Some call this the “Golden Rule of serving alcohol.” While it may seem obvious, it’s important to stress. Never serve alcohol to anyone underage the age of twenty-one. Government-issued IDs must be checked at any event where alcohol is consumed or sold. Remember: there isn’t a good excuse for a group of adults to allow a minor to obtain alcohol at the event, whether the host was aware of it or not.

In the next section, we will take a look at some important choices to be made prior to serving alcohol at an organization’s next fundraiser or social gathering.


By having a basic understanding of social host liability laws, you’ll have a pretty clear understanding of what your options are. Check out your state’s Social Host Liability Laws here (see page 44 – column one ONLY). The University of North Carolina has listed social host liability laws by state so that you will have an immediate understanding as to what responsibilities are expected of hosts.

State laws fall into one of two categories: hosts are forbidden from serving intoxicated people or the host is not subjected to any liability at all. Make sure you know which category your state falls into and begin planning from there.


Selling Alcohol

Once you start selling alcohol in exchange for cash at a fundraiser, you become subject to alcohol sales laws as set forth by your state and federal government restrictions. This usually involves purchasing a temporary liquor license, receiving state-mandated training, and an initial purchase to stock the bar with liquor, mixers, beer, and wine. It would also be wise to consult a lawyer to help you navigate the intricate legalities. This cost is far too great to justify for most organizations.

Complimentary Consumption

As stated above, you may be liable for serving alcohol to visibly intoxicated participants, even as limited, complimentary offerings. For example, many all-volunteer fundraisers will offer guests a self-serve wine table. Since your organization is responsible for self-serve consumption, that means your event hosts will need to have a volunteer or member from the organization to act as the “server,” by actively checking IDs and looking for signs of intoxication in party-goers. It’s imperative that these volunteers do not consume any alcohol themselves.

Next, a strategy to prevent unsavory actions at your event, in the future, or in the courtroom will be discussed.


The problem with selling alcohol or giving it away is that the liability of serving alcohol is typically placed on the shoulders of the nonprofit organization. One could argue that this is a type of business, in particular, that cannot open itself up to the stress and cost of defense litigation. Therefore, the next logical solution in creating a balance is to place legal “barriers” between the organization and the consumer.

This is achieved by employing tactics that will allow guests to enjoy themselves while the organization feels protected. The barriers put into place will be determined by considering the organization’s adversity to risk, the local community, and the budget available. Consider discussing this at your next board or executive committee meeting.

Here are a few ideas that may help a nonprofit feel like there are a few controls in place that ensures people are safe while having a lot of fun raising money:

Passively Limiting Consumption

There are a number of ways that politely let patrons know that it is okay to drink alcohol responsibly, such as offering a few “drink tickets” to each participant. One ticket is redeemable for one drink. You can also limit the hard stuff to beer and wine: no liquor.

Use Bar Hosting Services

Pass the liability buck by hiring a bar to host the event. As a licensed bar, they assume responsibility of all alcohol sales and liabilities. Hint: some bars will even donate a portion of sales to your event.

As you can see, there are a number of ways to navigate the legalities of organizing a safe, fun event for everyone involved. Remember: when in doubt, consult an attorney – they have your best interest at heart. Happy fundraising!