Fiduciary Duties of Booster Club Officers and Personal Liability

What “Fiduciary” Means

A fiduciary holds a position of trust over money or property that belongs to someone else. A booster club’s money belongs to the club, which holds it for the charitable purpose stated in its articles and bylaws. Officers decide how it is raised and spent, so the law holds them to a standard higher than ordinary honesty.

The three duties are described most clearly in regulator guidance. The New York Attorney General’s Charities Bureau, in its guidance for nonprofit directors, states that the primary legal duties of a board “are commonly referred to as the duties of care, loyalty and obedience.” State statutes word the standards differently, and not every statute names obedience as a separate duty, but the practical expectations are consistent.

Duty of Care

The duty of care requires a board member to be informed and to participate. The New York guidance describes acting in good faith with the “degree of diligence, care and skill” that prudent people would use in similar positions and circumstances.

The New York guidance notes that a recorded dissent is how a board member disclaims responsibility for a particular decision, and that absent members should register dissent promptly in writing. A board member who never reads the bank statements cannot later claim not to have known.

Duty of Loyalty

The duty of loyalty requires a board member to act in the club’s interest, not the member’s own interest or a family member’s. In practice:

1. Disclose any financial interest in a decision before the board discusses it.
2. Leave the discussion and the vote when a conflict exists.
3. Never use club money, property, or contacts for personal benefit.
4. Never steer club purchases to a family business without disclosure and a disinterested vote.
5. Never direct club benefits to a particular student, including the board member’s own child. See Private Benefit, Inurement, and Individual Fundraising Accounts.

A conflict of interest policy turns these rules into a procedure.

Federal excise taxes for insiders. Section 4958 of the Internal Revenue Code imposes “intermediate sanctions” on excess benefit transactions, meaning a transaction in which a 501(c)(3) public charity gives an insider more than the insider gives back. Voting board members, presidents, and treasurers, along with their family members, are “disqualified persons” for this purpose. The IRS applies a five-year lookback, so a person who held one of these positions within five years of the transaction still counts.

The tax on approving managers does not apply when participation was not willful and was due to reasonable cause. A board that discloses conflicts, votes without the interested person, and documents the decision is in a far stronger position.

Duty of Obedience

The duty of obedience requires the board to keep the club faithful to its mission, its governing documents, and the law. The New York guidance lists dedicating resources to the mission, avoiding unauthorized activities, complying with filing and registration laws, and providing required public disclosure documents. For a booster club this means:

• Spending money only on the purposes in the articles and bylaws.
• Honoring donor restrictions, such as spending a gift for new uniforms on uniforms.
• Filing the Form 990-series return every year. Missing three years in a row revokes exemption automatically. See Losing and Regaining 501(c)(3) Status.
• Keeping state registrations and reports current. See State Filing Requirements.
• Following district rules on fundraising, facilities, and money handling.
• Following the bylaws, including notice, quorum, and voting rules.

When Volunteers Can Be Personally Liable

The federal Volunteer Protection Act

The Volunteer Protection Act of 1997 (42 U.S.C. 14501 to 14505) protects an unpaid volunteer of a nonprofit from liability for harm caused by an act or omission, if all of the following are true:

1. The volunteer was acting within the scope of the volunteer’s responsibilities.
2. The volunteer was properly licensed or certified, where the activity requires it.
3. The harm was not caused by willful or criminal misconduct, gross negligence, reckless misconduct, or a conscious, flagrant indifference to the rights or safety of the person harmed.
4. The harm was not caused by operating a motor vehicle, vessel, aircraft, or other vehicle for which a license or insurance is required.

The Act has important limits:

• It does not protect the club. The statute states that it does not affect the liability of the nonprofit organization itself.
• The club can still sue its own volunteer. Actions by the organization against a volunteer are preserved.
• It excludes serious misconduct. It does not apply to a crime of violence or sexual offense for which the volunteer was convicted, a hate crime, a violation of federal or state civil rights law, or misconduct while the volunteer was under the influence of alcohol or drugs.
• “Volunteer” has a dollar limit. A person who receives compensation or anything of value in lieu of compensation of more than $500 a year (other than reasonable expense reimbursement) is not a volunteer under the Act.
• States can narrow it. A state may opt out for state-court cases where all parties are citizens of the state, and states may condition the protection on things like risk management procedures or training. State laws that give more protection are not preempted.

State volunteer and director immunity laws

Many states have their own volunteer or nonprofit director immunity statutes, and the conditions vary. California’s Corporations Code section 5239, for example, protects volunteer directors and officers of public benefit corporations from personal liability for negligent acts only if they acted within the scope of their duties, in good faith, without reckless, wanton, intentional, or grossly negligent conduct, and the damages are covered by a liability insurance policy or the corporation made reasonable efforts to obtain one. In that state, a club without insurance weakens its own officers’ protection. Other states’ rules vary; see Booster Club Filing Requirements by State.

Situations where protection often fails

• Signing in a personal capacity. An officer who signs a contract without identifying the club, or who personally guarantees a debt, may be personally bound. Sign as “Name, Treasurer, Example High School Band Boosters.”
• Unincorporated clubs. Whether officers or members of an unincorporated association can be held responsible for its debts varies by state. Incorporating is the usual protection. See How to Incorporate a Booster Club.
• Payroll taxes. The New York guidance warns that board members may be personally liable for failing to withhold and pay over employee taxes. Clubs that pay coaches or staff should read Paying Coaches, Instructors, and Contractors.
• Excess benefit transactions. The Section 4958 taxes above fall on individuals, not the club.

Protecting Officers

1. Carry directors and officers (D&O) liability insurance and crime coverage. See Booster Club Insurance.
2. Include an indemnification clause in the bylaws, so the club covers officers’ defense costs where state law allows.
3. Adopt a conflict of interest policy and follow it.
4. Read the materials before voting and record dissent in the minutes.
5. Require two signers, monthly non-signer review, and an annual financial review.
6. Follow the bylaws and district rules, and keep minutes that show it.