Bench & Bar

JAN 2018

The Bench & Bar magazine is published to provide members of the KBA with information that will increase their knowledge of the law, improve the practice of law, and assist in improving the quality of legal services for the citizenry.

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| JANUARY/FEBRUARY 2018 20 to exercise proper business judgment in board discussions. ere may be other factors to consider as well. If the attorney believes that he or she possesses confidential infor- mation that will affect the advice to the client or service to the nonprofit board, or that his or her ability to give independent advice to the client or to exercise proper business judgment when participating in board discussions will be affected, the attorney should decline service on a nonprofit board. However, if the attor- ney believes that he or she can serve on the nonprofit board and still provide competent and diligent representation to the client, and if all other requirements under the rules are met, the attorney may both serve on the nonprofit board and represent the client. An attorney "retained by an organization represents the organiza- tion acting through its duly authorized constituents." 12 A director is a constituent. 13 When a lawyer who represents the nonprofit entity also serves on its board, the lawyer becomes one of the duly autho- rized constituents who then direct and control the action taken by the nonprofit's lawyer/board member in representing the nonprofit entity. In these circumstances, issues of competence, independent judgment, confidentiality and conflicts could arise. An attorney should consider the nature of the nonprofit's business, and the nature of the law practice of the attorney or the attorney's firm, to determine the likelihood and frequency of these issues arising. is will help the attorney in determining whether he or she can undertake both representation of the board and serve as a board member, or serve only in the role of a board member or attorney, or decline altogether. An attorney is required to "exercise independent professional judg- ment and render candid advice" when representing a client. 14 An attorney's independent professional advice to a nonprofit entity on legal issues may be called into question by the attorney's role as a board member. If the attorney as a board member is involved in a board decision, and if the attorney is later asked to render a legal opinion on a board decision or action, the independence of the attorney's opinion may be questionable, or even compromised, due to his or her involvement with the board action. In such instance, an attorney may want to refer the nonprofit corporation to an out- side attorney and ensure that the referral of the nonprofit entity to outside legal counsel is duly noted in the board minutes. Confidentiality of information is another potential issue with an attorney serving on a nonprofit board. A lawyer is required to keep client information confidential "unless the client gives informed consent" or "the disclosure is impliedly authorized in carrying out the representation." 15 Such a rule of confidentiality would not be imposed on a board member alone but if the attorney is deemed to be acting as legal counsel, the rule on confidentiality could apply. 16 is not only presents challenges for an attorney acting in a dual role, but could present other conflicts for the attorney as the issues relate to the attorney's other clients and the other interests of the attorney unrelated to the nonprofit corporation. Perhaps most importantly, the directors of a nonprofit corporation need to understand that all conversations between a board and an attorney serving on the board may not be protected by the attorney-client privilege, even if the attorney is providing some legal representation to the nonprofit corporation. NONPROFIT ADVISORY BOARDS In the last decade, many nonprofit boards have elected to set up advisory boards. e responsibilities and duties of an advisory board member are somewhat different from that of a governing board member. An advisory board is not the legally governing body of the organization and thus does not carry the same legal, fiduciary, or management burdens as does a governing board. Advisory boards are usually formed to give recommendations to a nonprofit's governing board and management, and thus operate more like a committee. Advisory boards begin to look more like a regular board if advisory board members sometimes attend regular board meetings and par- ticipate in discussions on important matters before the board. If advisory board members perform tasks of voting board members and hold themselves out as directors, they may risk having fiduciary duties imposed upon them as de facto directors. e presence of advisory board members at a meeting with the regular board's attorney could also destroy the attorney-client privilege. While this may not directly impact the advisory board members, it could impact the governing board members and the nonprofit entity. Advisory boards can be invaluable to an organization, especially if they include past board members or donors, or if the advisory board members have experience and expertise that will enhance the organization's mission. But many well-formed governing boards may require that advisory members sign an agreement addressing confidentiality, non-competition, duties, compensation and other potential issues related to their advisory service. If the responsibility or risk of serving as a governing board member is too great for an attorney, serving as an advisory board member could be a more suitable option, but an attorney will still need to determine if any conflicts or ethical issues prevent that service. UNINCORPORATED NONPROFIT ASSOCIATIONS e Kentucky legislature recognized a new business entity in 2015 when it passed the Kentucky Uniform Unincorporated Nonprofit Association Act ("KUUNAA"). is act creates and describes rules for unincorporated nonprofit associations. KUUNAA defines a nonprofit association as an unincorporated organization consisting of two or more members joined under an agreement for one or more common, nonprofit purposes. 17 Under KUUNAA, managers are responsible for the management of the unincorporated nonprofit association. 18 e managers of an unincorporated nonprofit association have a duty of loyalty and care with respect to the unincorporated nonprofit association, and they must manage the association in good faith, in a manner the man- ager honestly believes to be in the best interest of the association, Features: NONPROFIT LAWS & REGULATIONS

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