Delaware corporate law imposes a duty of loyalty on officers and directors as a mechanism to regulate and deter self-dealing transactions. In nonprofit corporations, however, there are generally no shareholders with direct financial incentives to monitor against self-dealing. In the absence of shareholders and other principals, Congress and the IRS have articulated duty of loyalty rules for nonprofits that reach far beyond those applied to the for-profit world--most prominently the § 4958 intermediate sanctions. This article identifies the persons who owe a duty of loyalty to a nonprofit corporation, the applicable fiduciary standards for violating the duty of loyalty, and the remedies, procedures, and exoneration provisions under these fiduciary rules. While § 4958 and Delaware corporate law cover similar territory, they take remarkably different paths. By comparing the Tax Code with Delaware corporate law, it is readily apparent that, in the absence of shareholders, tax rules police the duty of loyalty for nonprofits more strictly than Delaware corporate law.
Carly B. Eisenberg and Kevin Outterson,
Agents without Principals: Regulating the Duty of Loyalty for Nonprofit Corporations Through the Intermediate Sanctions Tax Regulations,
5 J. Bus. Entrepreneurship & L.
Available at: http://digitalcommons.pepperdine.edu/jbel/vol5/iss2/2