How Can a Nonprofit Founder Guard Against Being Kicked Out of the Organization?

Consider the following scenario:  Jane founded a nonprofit organization a few years ago and served as volunteer executive director. The organization had a board of directors consisting of 5 members, including the founder. The board recently voted 3 – 2 to terminate the founder as executive director and remove her from the board. She was not given a hearing and was told after a special meeting that she was being removed because it was felt the organization needed to move in a different strategic direction.  Does the founder have any rights to appeal this unceremonious removal?  What could Jane have done to protect herself from this turn of events?

For a nonprofit founder who is committed for the long haul to provide years–or even a career—to the development of a nonprofit organization and wants to legally protect their personal interest in creating and building the organization, a founder can structure the organization as a nonstock corporation with a membership structure.  The protective twist is that the founder serves as the sole member of the organization (with powers analogous to a sole shareholder of a business entity).  Bylaws are drafted to provide that the sole member has the right to appoint members of the board of directors (including the founder), remove members of the board, and control amendments to the articles of incorporation and bylaws.  With this protection built into the organizational documents and governance structure of the organization, the founder is protected from being unexpectedly squeezed out of the organization she created.  Worth noting, however, that none of these structural safeguards alter or eliminate the fiduciary duties of care and loyalty that officers and directors owe to the organization or the board’s obligation to devote time and organizational assets exclusively in furtherance of the charitable mission of the organization, so it is not as if a founder can do anything she wants without consequence.

In most situations, nonprofit founders do not worry about being unceremoniously kicked out of the organization they helped create, but if and when those concerns are present, there is a structural mechanism capable of responding to them.

If you are looking to form a new nonprofit organization in Virginia or have questions about a nonprofit with which you are currently involved, reach out to Perkins Law, PLLC for assistance.