The Oklahoma Bar Journal December 2024

organization. 14 An attorney, there fore serving both as a director and paid legal counsel, may trigger this exception where they derive an improper personal benefit from the organization’s payments for their legal services. More often, the attorney pro vides legal counsel at no cost to the nonprofit organization. This pro bono service, however, must be provided in line with com petent representation. 15 Hence, where an attorney who is unfa miliar with the requirements of a tax-exempt 501(c)(3) organization modifies the organization’s bylaws to permit concurrent service of family members on the Board of Directors, this action may trigger the organization’s reclassification

attentive and act in a manner con sistent with a reasonably prudent director under similar circum stances. 8 The duty of obedience focuses on a director’s obligation to ensure the nonprofit organiza tion is acting within its mission and tax-exempt purpose. 9 This duty further focuses on the direc tor’s obligation to ensure corporate assets are used in line with dona tive intent and restrictions. 10 The duty of loyalty, however, focuses on transactions where the director has a direct or indirect conflict of interest with the nonprofit orga nization. 11 Service as both legal counsel and director may trigger a conflict of interest, breaching the attorney’s duty of loyalty to the organization.

COMPETENT REPRESENTATION AND LIABILITY PROTECTIONS Oklahoma law on nonprofit corporations provides immunity protections to directors in cer tain circumstances. Directors are provided immunity for vicarious liability stemming from “the negligence of corporate employees or other directors.” 12 This immu nity, however, is not unlimited, and directors may be personally liable for “intentional torts or grossly negligent acts or omissions personal to any director of the nonprofit corporation.” 13 A direc tor will also be liable where they breach the duty of loyalty to the nonprofit organization or where they derive an improper personal benefit from a transaction with the

Statements or opinions expressed in the Oklahoma Bar Journal are those of the authors and do not necessarily reflect those of the Oklahoma Bar Association, its officers, Board of Governors, Board of Editors or staff.

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THE OKLAHOMA BAR JOURNAL