A Survey of the Law of Colorado Nonprofit Entities

• Publication year: 1998
• Pages: 5
• Citation: Vol. 27 No. 3 Pg. 5

27 Colo.Law. 5 Colorado Lawyer 1998.

1998, April, Pg. 5. A Survey of the Law of Colorado Nonprofit Entities

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Vol. 27, No. 3, Pg. 5

The Colorado Lawyer
April 1998
Vol. 27, No. 4 [Page 5]

Articles

A Survey of the Law of Colorado Nonprofit Entities
by Peter C. Guthery
C1998 Guthery & Rickles, P.C

The purpose of this article is to provide the practitioner with a working guide and comprehensive but concise reference that emphasizes the eight main areas of Colorado law and the one area of federal law peculiar to the nonprofit, tax-exempt sector. The article is intended to assist the general practitioner, transactional attorney, and litigator who are occasionally called on to answer a question relating to a nonprofit organization. It also is intended to assist the specialist by furnishing a current review and update

This article does not address other substantive areas of the law that may pertain to a nonprofit entity with respect to a specific transaction (for example, laws pertaining to antitrust matters, securities, real estate, and employment contracts), except to the extent deemed of particular importance to the general operation of all nonprofit entities

Attorney General Oversight

Colorado nonprofit organizations, for the most part, enjoy substantial legal independence. State law presupposes self-policing by the organization, but permits intervention by the Attorney General in cases of fraud, abuse of authority, or noncompliance with certain corporate requirements.1 The Attorney General should be notified and may need to be joined as a party in a judicial proceeding brought to change the terms of a trust or to apply the doctrine of cy pres,2 and must specifically agree to amendments to certain charitable trusts.3

Choice of Entity

Most nonprofit entities operate in corporate form pursuant to the Colorado Nonprofit Corporation Act,4 unless they have purposes contemplated by special statutory provisions, such as cooperatives or ditch and reservoir companies.5 The trust form is more often used as a planning tool to fulfill intervivos or testamentary donative intent. Colorado has adopted the Uniform Unincorporated Nonprofit Association Act,6 which provides a vehicle to own, use, and dispose of property where there has been no incorporation or corporate status has been lost, such as through statutory dissolution.7

Effective July 1, 1998, the Colorado Nonprofit Corporation Act will be repealed in its entirety and replaced by the Colorado Revised Nonprofit Corporation Act ("New Act"), enacted during the 1997 legislative session.8 The New Act is intended to provide the drafter with great flexibility with respect to the organization and operation of the nonprofit organization, backed by default provisions, and to foster compatibility with the Colorado Business Corporation Act.9

Protection Against Liabilities

Effective July 1, 1998, directors, officers, employees, and members of nonprofit corporations will not, as such, be deemed personally liable for the acts, debts, liabilities, and obligations of the nonprofit corporation.10 However, persons who purport to act on behalf of a nonprofit corporation without the existence of at least a good faith belief that they have such authority are to be jointly and severally liable for all resulting liabilities.11

The Articles of Incorporation may eliminate or limit the personal liability of a director to the nonprofit corporation or to its members for breach of fiduciary duty, except for acts arising out of a breach of the duty of loyalty, intentional misconduct or a knowing violation of the law, the making of unlawful distributions, or the receipt of improper personal gain.12 A director and officer are not personally liable for torts committed by an employee unless the director or officer was involved or unless, in connection therewith, the director or officer committed a criminal offense.13

Colorado recognizes a limited version of the doctrine of trust fund immunity that protects the nonprofit corporation from damages arising out of a tort committed by a trustee or by a nonprofit corporation,14 and may in some cases even bar the bringing of an action.15 Colorado also has enacted "good Samaritan" legislation protecting "a service or act of assistance, without compensation or expectation of compensation, for the benefit of another person"; protecting directors of nonprofit corporations or organizations (except for damages arising from their willful and wanton acts or omissions); and protecting individual volunteers serving young persons (except for willful and wanton acts or omissions, and for harm to third persons).16

The Colorado Volunteer Service Act extends immunity to volunteers who serve nonprofit corporations, organizations, and hospitals without compensation (other than expenses) if acting in good faith, within the scope of the volunteer's duties and not involving willful and wanton misconduct.17 Such immunity is also extended to uncompensated directors and officers of nonprofit corporations and organizations.18

Specific immunities...