Hawaii Non-profit Directors: Accepting Compensation Increases Liabilities

A director of a Hawaii nonprofit corporation may enjoy certain benefits such as receiving compensation to serve as a director to the Hawaii nonprofit corporation. However, by doing so, a director leaves himself/herself more susceptible to becoming liable for damage, injury, or loss caused by or resulting from his/her performance of or failure to perform duties.

Hawaii law provides that any person who serves as a director to a nonprofit corporation without remuneration or expectation of remuneration shall not be liable for damage, injury, or loss caused by or resulting from the person’s performance of, or failure to perform duties of, the position to which the person was elected or appointed, unless the person was grossly negligent in the performance of or failure to perform such duties.

Being held to a grossly negligent standard makes it harder for a director to be personally liable in comparison to a director being held to a standard negligent standard.

Although the Hawaii Revised Statutes does not specifically address what standard a director is held to if he/she accepts compensation, it appears that at the very least such director would be held to the lower negligence standard.

Therefore, a director needs to weigh the benefit of receiving compensation (which, if it is a tax-exempt entity, must be thoroughly documented with a compensation study in order to avoid intermediate sanctions) versus being held to a grossly negligent standard rather than a negligent standard. More importantly, a director should find out whether the corporation carries directors and officers liability insurance as the lack thereof would make it an easier decision for the director to not accept any compensation.

Contact us and we, as your Hawaii attorneys, can assist you in analyzing your Hawaii nonprofit corporation’s issues.

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