Michigan MCL 450.2541: Nonprofit Director Duties, Liability

Quick Answer

MCL 450.2541, part of the Michigan Nonprofit Corporation Act, sets how a director or officer of a nonprofit corporation must act: "in good faith," with "the care an ordinarily prudent person in a like position would exercise under similar circumstances," and in a manner the director "reasonably believes is in the best interests of the corporation." It also lets directors rely on certain reports and sets limits on lawsuits.

It matters to any Michigan condominium or HOA board whose association is incorporated as a nonprofit corporation. If your association is organized differently, check your documents and ask counsel which law applies.

At a Glance

What the Law Says

The duty (subsection 1)

"A director or officer shall discharge his or her duties as a director or officer including his or her duties as a member of a committee" as follows:

• "(a) In good faith."
• "(b) With the care an ordinarily prudent person in a like position would exercise under similar circumstances."
• "(c) In a manner he or she reasonably believes is in the best interests of the corporation."

Reliance (subsections 2 and 3)

A director or officer "is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data," if prepared or presented by:

• directors, officers or employees "whom the director or officer reasonably believes to be reliable and competent in the matters presented";
• "legal counsel, public accountants, engineers, or other persons" on matters the director "reasonably believes are within the person's professional or expert competence"; or
• a board committee of which the director is not a member, if the director "reasonably believes that the committee merits confidence."

Subsection 3 removes that protection if the director has "knowledge concerning the matter in question that makes reliance otherwise permitted under subsection (2) unwarranted."

Funds statute (subsection 4)

A director or officer of a corporation subject to the uniform prudent management of institutional funds act (2009 PA 87, MCL 451.921 to 451.931) is considered in compliance with this section if he or she complies with that act in administering the powers it covers.

Liability limits (subsections 5 and 6)

If the articles of incorporation contain a provision authorized under section 209(1)(c), a director "is only personally liable for monetary damages for a breach of fiduciary duty" to the extent the provision sets out. If the articles contain a provision authorized under section 209(1)(d), a monetary damages claim against a volunteer director for breach of duty to anyone other than the corporation, its shareholders or members "shall not be brought or maintained against the volunteer director." The claim "may be brought or maintained against the corporation, and the corporation is liable for any breach of the volunteer director's duty."

We did not read section 209 itself. These two limits only apply "if" the articles contain the provision. Whether your articles include them is a document-specific question.

Time limit (subsection 7)

An action against a director or officer for failure to perform these duties "shall be commenced within 3 years after the cause of action has accrued, or within 2 years after the time when the cause of action is discovered or should reasonably have been discovered, by the complainant, whichever occurs first."

What This Means in Practice

For boards

Our reading: the statute does not require perfect decisions. It describes a process-based standard: act in good faith, prudently, and with a reasonable belief that the choice serves the corporation. Boards support that standard by documenting how decisions were made. Examples that fit the text include reviewing financial statements, getting written advice from an attorney, accountant or engineer on matters within their expertise, and recording what information the board considered in the minutes.

The reliance protection is conditional. It covers reports from people the director "reasonably believes" are competent, and it ends where the director has knowledge that makes reliance unwarranted. A board that ignores a red flag in a report cannot treat subsection 2 as a blanket shield.

Officers are covered along with directors, and so is committee service. Our reading: a volunteer on an architectural or finance committee who is a director or officer is acting under the same standard in that role.

For owners

Owners who think a director breached the standard should note the short window: the 3-year and 2-year periods in subsection 7, whichever comes first. The text does not say how the discovery rule is applied to a particular dispute. Get legal advice promptly rather than waiting.

Questions the statute leaves open

• It does not say whether your association is a nonprofit corporation. That depends on how it was organized. The Condominium Act requires bylaws to designate persons to administer the project, but we did not find in the sections we read a rule that the association must be incorporated.
• It does not define "volunteer director" in subsection 6. We did not read the definition elsewhere in the Act.
• Whether the articles contain a section 209(1)(c) or (d) provision cannot be answered from the statute. Read the articles of incorporation.
• It does not set damages. We did not review cases interpreting the standard.
• Indemnification of directors is addressed elsewhere. For condominiums, MCL 559.154(6) requires the bylaws to contain an indemnification clause with 10 days' notice to co-owners before payment, excluding "willful and wanton misconduct" and "gross negligence."

Timeline

Related Michigan Law

• Are Michigan HOA board members personally liable?
• MCL 559.154: mandatory bylaw provisions (including indemnification)
• MCL 450.2485: books, records and minutes
• MCL 450.2407: action without a meeting
• Insurance and casualty provisions in condominium bylaws
• HOA board elections in Michigan

Board Checklist

• Confirm with counsel whether the association is a nonprofit corporation and where its articles are on file.
• Read the articles for any section 209(1)(c) or (d) provisions.
• Record in the minutes the information the board reviewed before major votes.
• Get written advice from the lawyer, accountant or engineer on matters within their field.
• Do not rely on a report when you know something that makes it unreliable; raise the issue first.
• Disclose and manage conflicts of interest according to your documents.
• Check that the D&O policy and indemnification clause match what the board assumes they cover.

Frequently Asked Questions

What standard of care does Michigan law set for nonprofit directors?

Good faith, the care an ordinarily prudent person in a like position would exercise under similar circumstances, and a reasonable belief the action is in the corporation's best interests (MCL 450.2541(1)).

Can a director rely on the association's attorney or accountant?

Yes, on matters the director reasonably believes are within the professional's expertise, unless the director has knowledge that makes reliance unwarranted (subsections 2 and 3).

Are volunteer directors immune from lawsuits?

Not automatically. Subsection 6 protects a volunteer director against certain claims by outsiders only if the articles contain a provision authorized under section 209(1)(d), and the claim can still be brought against the corporation.

How long does someone have to sue a director?

The action must be commenced within 3 years after accrual, or within 2 years after discovery or when it should have been discovered, whichever occurs first (subsection 7).

Does this apply to a condominium association?

It applies to corporations under the Nonprofit Corporation Act. If your association is incorporated under it, the section covers its directors and officers. Confirm your association's form with counsel.

Does the section cover committee members?

It covers a director or officer "including his or her duties as a member of a committee."

Does it mention managers or management companies?

No. The text covers directors and officers only.

Where This Comes From

This page is based on the text of MCL 450.2541 as published on the Michigan Legislature website (MCL 450.2541), current through PA 114 of 2026, and MCL 559.154 for the condominium indemnification requirement. We did not read MCL 450.2209 or court decisions.

How APM Helps

Association Property Managers manages condominium and HOA communities across Michigan from our East Lansing office, with flat, published pricing. See our Michigan service area, browse every Michigan state-law guide, or request a free proposal. Laws and documents differ by community, and we review your master deed and bylaws when we build your proposal.

Legal disclaimer: This article is general information, not legal advice. Laws change and associations differ. Confirm the current statute text and how it applies to your governing documents with a licensed Michigan attorney before acting.