Q: I have been asked to join the board of directors for a local charity. My small business sponsors an annual fundraising event for the charity. Can I serve on the board and still have my business sponsor the event or is this a conflict of interest?
A: It depends. As a director, you will owe the charity a duty of loyalty, meaning you must act in the best interest of the charity and cannot seek to derive personal gain from its programs or transactions. New Hampshire law also has specific rules for handling “pecuniary benefit transactions,” or transactions with a charity involving goods or services provided in the ordinary course of business in which a director has a direct or indirect financial interest. For example, if you own a cookie business, a bake sale could be considered a “pecuniary benefit transaction,” if the items sold contain your business’ branding because it could result in increased sales of your cookies, an indirect financial benefit to you as a director.
However, a “pecuniary benefit transaction” is necessarily prohibited, the sponsorship may continue while you are a director under certain circumstances:
If the financial benefit from the sponsorship is less than $500, then, assuming the charity does not have additional conflict of interest policies, your business’ sponsorship while you serve on the board should not create a conflict of interest with the charity.
If the financial benefit to your business from the sponsorship is more than $500 but less than $5,000 the sponsorship may still be permissible provided that the material facts of the transaction are disclosed to the charity’s board and a two-thirds majority of the disinterests directors determine that the transaction is in the charity’s best interest and approve the transaction. Keep in mind that the “disinterested directors” are those directors without a direct or indirect financial interest in the transaction during that fiscal year. The charity will also need to include the sponsorship on its annual report to the New Hampshire Director of Charitable Trusts.
Finally, if the financial benefit to your business is greater than $5,000, then, in addition to board approval, the charity will also need to notify the New Hampshire Director of Charitable Trusts before consummating the transaction and the charity must publish a notice of the transaction in the local paper for each fiscal year in which the transaction exceeds $5,000.
Know the Law is a bi-weekly column sponsored by McLane Middleton. Questions and ideas for future columns should be emailed to knowthelaw@mclane.com. Know the Law provides general legal information, not legal advice. We recommend that you consult a lawyer for guidance specific to your particular situation.