501-(c)-(3) organization - has Executive Board (15 members) Executive Board Member signed contract without approval or directive, makes fiduciary commitment without prior approval, does not inform Board of the subversive dealings....what is our recourse?
1 Answer from Attorneys
Question raises many issues and omits many necessary facts, but starting point is to carefully review organizations By-Laws and formation documents.
Assuming Executive Board Member truly did exceed his or her authority in signing contract, then organization may either (i) ratify and confirm contract - akin to saying, "board member acted beyond authority, but organization will approve contract now as if we had approved then," or (ii) serve notice on all interested parties that organization repudiates - declines to ratify - contract, and return any proceeds or benefits received to date. This is with respect to the counterparty to the contract, of course.
With respect to the board member, recourse could run the gambit from removal to suit, depending on the many unstated facts and circumstances.
The organization should confer with an experienced lawyer, as everything it does is subject to scrutiny by, among others, the IRS, which theoretically could deny or terminate 501(c)(3) status depending on findings.
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Scott Summer, Staff General Counsel
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