Church Directors and Fiduciary Duty

By January 9, 2020 Church
Church Directors and Fiduciary Duty

As nonprofit organizations, churches are not in it for the money—though of course, they must bring in funds in order to perform their operations, to secure places of worship, to pay their employees, and so forth. Still, they don’t have “shareholders” in the sense that standard corporations do. And therefore the standard of care and the duties those running the church (the elder board, deacon board, or other governing body—also called “directors” of the corporation) must adhere to are different in kind. For their part, church directors have a fiduciary duty to the church itself, which means that a church director must act in the best interest of the church, taking care to stick to its mission—and this means, in turn, that they cannot act in their own self-interest to the church’s detriment.

There are a number of specific fiduciary duties enumerated in the Arizona statutes that every church director must adhere to in order to properly perform their function:

  • The Duty of Care—Directors must take their responsibility to provide organizational oversight seriously, ensuring they execute their actions with reasonable care.
  • The Duty of Obedience—Obedience, that is, to the purpose of the church’s activities as stated in its application for IRS-exempt status (if such an application is made), and to both state and federal laws.
  • The Duty to Act in Good Faith—This is the concept of acting honestly, faithfully performing duties and obligations with good intention, and avoiding making any attempts to defraud or take advantage of the church in any way for personal gain.
  • The Duty of Loyalty—A director must behave in a manner that proves their intent to act in the interest of the church, of those it serves, and of those who donate funds to enable the church’s operations. When the director’s duties of loyalty come in conflict with the director’s own self-interest, the director must choose to act in favor of the church. In order to clarify this for directors, it is important that a written conflict of interest policy be made and that the director review it annually. This policy should, at the very least, include that the director reveal any conflicts of interest that should arise.

Provident Law’s church and nonprofit attorneys are here to help you draft just such a policy. When a church or nonprofit organization in Arizona needs legal advice, we stand ready. Wealso counsel and serve charities, foundations, and other types of nonprofit organizations—providing broad transactional and general counsel services. Contact us to learn more.