Adams Stirling PLC


“[T]he services of directors and officers of nonprofit corporations who serve without compensation are critical to the efficient conduct and management of the public service and charitable affairs of the people of California.” (Corp. Code § 5047.5(a).)

Volunteer Defined. Under federal law, a volunteer is defined to mean a director, officer, trustee, or service provider who performs services for a nonprofit organization or governmental entity and does not receive compensation (other than reasonable reimbursement or allowance for expenses) or anything with a value in excess of $500 per year. (Volunteer Protection Act of 1997, Public Law 105-19, 42 USC 14501 et seq.) A nonprofit organization is not limited to organizations tax exempt under IRS Code § 501(c)(3). It includes any nonprofit organization, whether or not tax exempt.

California's Corporation Code § 5239(b) defines “Volunteer” to mean the rendering of services without compensation. “Compensation” means remuneration whether by way of salary, fee, or other consideration for services rendered. However, the payment of per diem, mileage, or other reimbursement expenses to a director or executive officer does not affect that person’s status as a volunteer within the meaning of this section.

Expense Reimbursement Allowed. Payment of per diem, mileage, or other reimbursement expenses to a director or executive officer does not affect that person's status as a volunteer. (Corp. Code § 7231.5(b)Civ. Code § 5800(b).) For example, if a director buys light bulbs for the common areas using his own money, the association can reimburse him without impacting his volunteer status. Directors should ALWAYS produce a receipt for those items for which they are seeking reimbursement.

Liability Protections. Volunteer officers and directors are afforded various protections against personal liability. Such protections are necessary otherwise it would be nearly impossible to recruit people to serve on association boards of directors. Protections against legal exposure are extended to directors as follows:

1.  D&O Insurance. Directors and Officers insurance protects against errors and omissions made while in office.

2.  Statutory Indemnity. The Davis-Stirling Act protects volunteers from personal liability while on the board of directors provided they meet certain criteria. (Civ. Code § 5800; Corp. Code § 5047.5(b).) Directors and officers can also be indemnified by their association if they had no reasonable cause to believe their conduct was unlawful. (Corp. Code § 7237.) The Corporations Code extends further protections under the Business Judgement Rule.

3.  Governing Documents. Typically, an association's CC&Rs and bylaws both contain exculpatory language as well as hold harmless and indemnity provisions protecting officers and directors from liability for negligent acts and omissions while in office.

ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.

Adams Stirling PLC