Much like a for-profit corporation, a nonprofit corporation will also have a board of directors as a matter of course when starting. The board is the governing body of the nonprofit that is responsible for managing and running the organization’s activities. These members are generally not employees or other paid staff, and ideally, should not be related, either. During the startup phase, however, related members and managers may be utilized as the initial board of directors.
The board meets, at a minimum, yearly, but will probably have more regular meetings to make sure that the nonprofit is doing the job it set out to do.
In addition to board members there are also officers that fulfill different functions than the board:
· President, who heads and supervises the board’s activities
· Secretary, who keeps minutes of the board meetings, current contact information for the board’s members, and keeps track of activities to ensure that they fall within the organization’s bylaws and guidelines
· Treasurer, who keeps track of the organization’s financial condition, and track of all the cash flow in and out of the organization’s books.
Officers are typically board members, but others can also be brought in. Caveat: the President cannot also serve as Secretary, and vice versa.
Who Should You Bring To The Board?
While there are no hard-and-fast rules about who your board members should be, the best board members should be individuals who are passionate about the work your nonprofit does and align with the mission.
Board members are individuals who steer the organization and adopt sound best practices and ensure that resources are adequate to achieve its mission. Additionally, a nonprofit’s board has three requirements:
· Duty of Care—a board member must be active in decision making and planning for the nonprofit, exercising reasonable care when making a decision.
· Duty of Loyalty—board members must always act in the best interest of the organization, never use information from the organization for personal gain, and avoid conflicts of interest or the appearance of a conflict.
· Duty of Obedience—the board is trusted by the public with properly managing donated funds. Board members should always remain faithful to the organization’s mission, and not act in a way that is inconsistent with its goals or mission.
The board will also:
· Hire the CEO/executive director, and supervise him or her
· Ensure the financial solvency of the organization by reviewing financial reports, approving key contracts, approving budgets and evaluating its financial policies
· Hold regular meetings and attend, preferably with a quorum for voting
· Participate in and approve fundraising activities. Members should be able to identify potential major donors and approach them for donations.
Conflicts Of Interest
Any arrangement or transaction that would offer a direct, private benefit to a board member, officer or employee is a conflict of interest and can come in several forms. This is particularly true when board members are also employees or are related by blood or marriage. It can also be two individuals to close a business relationship, i.e., co-owners of a commercial business who serve as board members for the same nonprofit.
A public charity will nearly always be disallowed from having a majority-related board, and the IRS will likely prohibit it during the first review of the organization’s Form 1023 application.
A majority related board or one with “dual capacity individuals” (those who also work for the nonprofit) may not be able to have a quorum for voting purposes.
There are additional guidelines available to avoid conflicts of interest with the board in your nonprofit.
Chicago’s Nonprofit Attorney
James C. Provenza is a leading Illinois non-profit attorney with years of experience navigating the complex legal landscape surrounding nonprofit organizations and the issues they face. Call our firm today at (847) 729-3939, or use our online contact form. We can help you start your nonprofit and run it well for many years to come.