Do you make decisions for a non-profit organization or act on its behalf in certain situations? For example, are you the executive director of a non-profit or are you on the board? If so, you must correctly handle conflicts of interest and use the non-profit’s resources to fulfill its mission. This is part of your duty to always put the interests of the non-profit first while acting for the organization.
This article is for non-profits incorporated under Quebec law.
To learn more about federally incorporated non-profits, check out our article Non-profits: Incorporate With the Quebec Government or the Federal Government? or Corporation Canada’s website.
Also, your non-profit’s letters patent, by-laws, code of ethics, or other internal documents may have more rules for handling conflicts of interest in addition to the ones described in this article.
Correctly handle conflicts of interest
Conflicts of interest can be subtle, and they can’t always be avoided. Here’s how to identify them and what to do when you have one.
How to identify conflicts of interest
A conflict of interest is any situation where an outside observer might wonder whether you were influenced by the interests of someone other than the non-profit while acting on the organization’s behalf. So, this includes any situation where you could be influenced by your interests or the interests of someone you have a relationship with like
- a loved one,
- an employer,
- a company you own shares in, or
- a different organization you’re involved with.
Imagine a situation where a non-profit’s board needs to buy insurance for the organization. One of the directors on the board is an insurance advisor. If the non-profit buys insurance through this director, the director will get a commission. This director has a conflict of interest in this situation.
You should avoid conflicts of interest if you can. But it’s not always possible to avoid conflicts of interest. That’s why you must take these steps when you have one.
What directors need to do when they have a conflict of interest
If you’re on the board of a non-profit incorporated in Quebec, you must tell your fellow directors about your potential conflicts of interest as soon as possible.
At your first board meeting, you must explain any interests you have in another business or organization that could conflict with the non-profit’s interests, for example. Going forward, if you ever become aware of a new conflict of interest, you must explain it at the next board meeting.
If you want to enter into an agreement with your non-profit, you must follow certain rules. For example, what if you want to buy a property that the non-profit is selling? You have a conflict of interest in this situation.
Normally, the other directors must decide if your offer is in the organization’s interests without your input. This means that you can’t participate in the discussion or vote on the decision.
Exceptionally, directors can decide whether they are paid and how much, even though they have a conflict of interest in this situation. But the amount must be reasonable.
Make sure the meeting minutes include information about conflicts of interest and the details of who discussed or voted on a decision.
What executive directors need to do when they have a conflict of interest
If you’re the executive director of a non-profit incorporated in Quebec, you must follow certain rules if you want to enter into an agreement with your non-profit. An example would be if you’re selling something the organization needs to buy for its activities.
Even if you’re normally responsible for approving this type of agreement for the non-profit, you can’t do that in this situation because you have a conflict of interest. The board must decide if your offer is in the non-profit’s interests and give you permission to enter into an agreement with the non-profit.
Use the non-profit’s resources to fulfill its mission
Non-profits have resources like funding, property, or information. These resources belong to the organization. They must be used to fulfill the non-profit’s mission.
If you want to use these resources for something else, you need to get permission first from the person or people to whom you report. If you’re the executive director of a non-profit incorporated in Quebec, you need to get permission from the board. If you’re on the board, you need to get permission from the non-profit’s members.
You need this permission to do things like
- taking money from the non-profit’s bank accounts or using its credit cards to pay personal expenses, even temporarily,
- using the non-profit’s property for personal reasons,
- loaning the non-profit’s money or property to a person or an organization that you know, or
- using private information about the non-profit or its activities to benefit yourself or another person or organization.
The person or people being asked for permission can approve your request if they decide it’s in the non-profit’s interests to do so. For example, the non-profit could benefit from letting you temporarily use some of its empty space in exchange for a reasonable rent.
If you don’t follow these rules, there may be consequences
Your non-profit could sue you if you act for the organization in a situation where you have a conflict of interest or if you use its resources without permission. The non-profit could ask a court to cancel what you did on its behalf. It could also ask a court to order you to pay for any harm you caused to the organization or to pay back any profit you made off the organization without permission.
Other people could also sue you in some cases. You can be personally responsible for the harm you cause someone by mishandling a conflict of interest.
Misusing the non-profit’s resources can even sometimes meet the definition a crime. For example, taking money from a non-profit without permission can lead to criminal charges for fraud.
Finally, the non-profit could dismiss you from being a director or executive director of the organization. A court can also ban someone from being on the board of any non-profit for up to five years if this person has been found guilty of defrauding an organization or has repeatedly broken other laws that apply to non-profits.