What is a Nonprofit Board of Directors and What Do They Do?
When you start a nonprofit organization, one of the first things that you’ll need to do is assemble a board of directors. Not only is a board of directors required by law in order to qualify for 501(c)(3) status, but having strong leadership voices in your organization will make your nonprofit better organized for success.
Here’s everything that you need to know in order to assemble your board of directors dream team and create a group that will lead your nonprofit to success.
What Is a Nonprofit Board of Directors?
Like any business, every nonprofit has employees. Some of these employees perform tasks directly related to the nonprofit’s mission — such as making soup for the homeless or sorting clothes that have been donated — but others are required to provide higher level guidance and make broad decisions about the nonprofit’s mission and activities. In a normal business, these leaders would hold upper management positions, receiving large bonuses and company shares to reward incentivize their efforts.
However, in a nonprofit company, leaders and shareholders aren’t allowed to take the company’s profits for themselves. Instead, those profits are required by law to be reinvested into the nonprofit’s mission. This means that, unlike a conventional for-profit company, a nonprofit needs a group of leaders who are financially divorced from the business — taking home no salaries or bonuses — to make decisions about how money should be used. This is the role that a board of directors fills.
A board of directors is a minimum of three people who make executive-level decisions for the nonprofit. They’re all volunteers, so they don’t make any money from their work or collect any income from the nonprofit. However, they are still an instrumental part of any successful charity.
Why Does a Nonprofit Need a Board of Directors?
The IRS is very particular about who gets 501(c)(3) status and who doesn’t. Most importantly, the government is concerned with preventing for-profit companies from getting tax breaks that they don’t deserve. The IRS also wants to prevent poorly run nonprofits from taking advantage of special tax breaks while failing to fulfill their charitable mission.
A well-organized board of directors made up of volunteers is the first line of defense against both of these concerns. Therefore, the IRS mandates that a nonprofit must have a board of directors comprised of at least three volunteers in order to qualify for 501(c)(3) status.
How Many Members Does a Nonprofit Board of Directors Need?
Three members it the minimum required by the IRS. However, you can add additional members if you have many volunteers or you’d like to split up duties between extra officers on your board of directors. You can also have members volunteer in shifts, with three on and three off switching every few months. This will help your board of directors avoid burnout and keep fresh ideas flowing into your nonprofit.
What Are the Nonprofit Board of Directors’ Responsibilities?
Although a nonprofit board of directors is made up entirely of volunteers, they still have strict rules about what they can and cannot do. Legal guidelines about the conduct of a board of directors are usually broken down into the following virtues.
Duty of Care
The board of directors is the highest entity in a nonprofit, but that does not mean that their decisions are beyond criticism. If a board member acts without care for the organization in their role as a leader, then they are violating their duty of care. Instead, they must still make a good-faith effort to lead their nonprofit to success, even though they don’t stand to make any money from their work.
Duty of Loyalty
Board of directors members are forbidden from taking a salary from their nonprofit. This principle of volunteering over making a profit extends to all monetary activity related to the organization. Members must avoid conflicts of interest, such as contracting with for-profit companies that they own a financial stake in when it’s not necessarily in the best interest of the nonprofit.
Duty of Obedience
Above all, board members should always act in ways consistent with the nonprofit’s mission. They aren’t on the board to represent their own interests, but instead to apply their expertise and knowledge to the nonprofit’s challenges.
Additional Responsibilities and Functions
In addition to following the moral code listed above, the board of directors is also responsible for maintaining the organization’s finances, raising funds, hiring an executive director, and they hold the final seal of approval on important contracts between the nonprofit and other businesses.
What Positions Are Needed on a Board of Directors?
In addition to the duties that are expected of any board member, there may also be specific roles within a board of directors that need to be filled.
The president of a board of directors holds the highest seat on the board. Although every member has a say in the organization’s activities, the president will direct meetings and act as the voice of the nonprofit.
The secretary is responsible for recording the proceedings of every board of directors meeting. The secretary is also responsible for monitoring and reporting on the activities of the organization itself.
The board’s treasurer holds the company credit card, so to speak. They are responsible for monitoring and maintaining the organization’s finances and making sure that the nonprofit uses and collects money in ways consistent with the IRS’s 501(c)(3) guidelines.
For nonprofits with more sophisticated missions and operations, it’s not unreasonable to expect more than three officers to sit on the board of directors at any given time. Depending on the breadth of the organization’s activities, it may be useful to have board vice presidents who are responsible for specific departments or sub-missions within the organization. These vice presidents can report on and direct activities in their given department.
A board of directors is made up of volunteers that are willing to call the shots for a nonprofit organization without any personal compensation. Local business leaders who are looking to bolster their resumes make great candidates for board members who have both expertise and an interest in giving their time to help your nonprofit succeed.
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Nick Cesare is a writer from Boise, ID. In his free time he enjoys rock climbing and making avocado toast.
This post was updated March 8, 2018. It was originally published March 2, 2018.