Derivative Actions for Vermont Nonprofit Board Members: Protecting the Organization's Interests
Introduction
As a board member of a Vermont nonprofit, you have a fiduciary duty to act in the best interests of the organization. If you suspect mismanagement, wrongdoing, or a breach of duty by other board members or officers, a derivative action could be a tool to rectify the situation. Let's explore what this is and how the process works in Vermont.
What is a Derivative Action?
In Essence: A derivative action is a lawsuit brought by a board member (or shareholder in a for-profit corporation) on behalf of the organization itself.
Why It's Used: It's used when the board of directors is unwilling or unable to take action themselves to address a potential wrong against the organization.
Important Note: The board member essentially steps into the role of the organization and sues the individuals responsible for the alleged harm.
Vermont's Statute
Vermont's Nonprofit Corporation Act specifically authorizes derivative actions.
Key Requirements for Bringing a Derivative Action in Vermont
Standing: You must be a current board member of the nonprofit organization.
Written Demand: You usually must first make a written demand to the board of directors requesting that they take corrective action.
Good Faith: You must act in good faith and believe that your lawsuit is in the best interests of the organization.
Potential Court Scrutiny: The court may dismiss the action if it finds that it's not in the best interests of the corporation.
The Process of a Derivative Action
Consultation: First, consult with an experienced Vermont nonprofit attorney.
Demand Letter: If advised, craft a detailed written demand to the board.
Lawsuit Filing: If the board declines to act, you may file a derivative lawsuit.
Court Proceedings: The court will evaluate the case and determine if the action can proceed.
Important Considerations
Complexity: Derivative actions are often complex and can be expensive.
Attorney Guidance: Seeking legal counsel throughout the process is crucial.
Board Dynamics: A derivative action can impact relationships within the board, so weigh your options carefully.
Conclusion
Derivative actions provide Vermont nonprofit board members a tool to hold others accountable when the organization's well-being is at stake. Understanding this legal mechanism can empower you to uphold your fiduciary duties in challenging situations.
Disclaimer: This blog post is for informational purposes only and should not be taken as a substitute for professional legal advice. Contact Atkins Law Offices for a free consultation. We are happy to assist clients with understanding these complex matters and, if necessary, pursuing the same.