Associations are fulfilling an ever increasing number and variety of tasks. As a consequence, the persons responsible are exposed to higher requirements and liability risks. The association being the typical form of organization for people united to jointly achieve a good purpose, many associations and their board members are today taking on the challenge of performing a variety of tasks of great responsibility. Today, there are associations running commercial businesses with large numbers of employees. But this kind of activities also entails liability risks that are sometimes difficult to overlook by the directors who are, in many cases, working in an honorary capacity.
During their day-to-day business operations, the board members and other persons acting on behalf of the association, like managing directors or project leaders, can trigger liability claims from members of the association or third parties either against the association or against these people themselves. Therefore, the persons responsible first need to identify the liability risks pertaining to the association's work and which cases can result in a personal liability involving their private property.
Due to their demanding tasks, especially the board members will have to address potential liability risks, whether of a fiscal nature or not. Still many board members are working in an honorary capacity and often fail to see personal liability risks and their implications. For example, the association's board of directors is responsible for fulfilling the association's fiscal obligations, including the record-keeping for tax purposes. In case of back taxes, the tax office may even hold the association's board of directors liable. In case of unpaid social security contributions, e.g. due to a wrongful classification of an employee as no dependent employee, the board members will also be held responsible. In addition, the articles of association of many associations contain numerous potential pitfalls that may give rise to liability claims.
The liability of an association and its management bodies in external relations cannot be completely excluded. However, an association's liability may be effectively minimized by designing the articles of association in a way providing legal security, by a careful examination and formulation of the staff and directors' employment contracts and by a well thought-out reorganization of the association. Particularly the articles of association's provisions relating to nonprofit law and the (often) missing regulations relating to the expense allowance for board members often require an examination and, where necessary, an amendment of the articles of association.
In addition, any expense allowances paid to the board members or other staff of the association need to be checked for their classification under social security law to avoid any liability claims from social insurance agencies. For associations performing extensive activities in special-purpose enterprises and commercial businesses, it may also be expedient to define responsibilities and, hence, the liability of the board members by clearly allocating areas of responsibility. Those areas that may present liability risks for the association can be outsourced to a subsidiary limited liability company under German law (Tochter-GmbH) so as to relieve the board from its management responsibility in this regard.
In addition, the bookkeeping and tax advice should be left to experienced experts who specialize in the fiscal particularities of nonprofit associations and are able to identify potential risks at an early stage.
As experienced consultants, we will be very pleased to assist you in examining potential liability risks. We optimize your articles of association including all related bylaws and other codes of your club or association and support your association's reorganization. We know what aspects of tax law, nonprofit law, corporate law, and labor law deserve special attention in the context of your project.
As one of the leading law firms in the field of nonprofit law, we can also offer to provide the bookkeeping and tax advice, including the necessary annual financial statements, so as to minimize your association's liability risks in this regard, too.
Do you have any questions relating to the liability of associations or wish to know how you, in your capacity as member of an association's board, may be held liable? Your contacts for any questions relating to nonprofit law, association law and on how to avoid liability cases against your association are specialist attorney Johannes Fein and attorney Bartosz Dzionsko. The easiest way to reach us is by e-mail (firstname.lastname@example.org) or by telephone (+49 (0)69 76 75 77 80).