The board of directors is the governing body of an organization. Individuals on the board are referred to as the “directors” and are responsible for building and overlooking the organizational structure of the organization. But what exactly is a board of directors and what is the role of directors within a nonprofit? Let’s find out!
What is a Board of Directors?
The board of directors is a fiduciary body with the sole aim of steering the nonprofit towards a sustainable future. They develop ethical governance and financial policies to make sure that the organization has enough funds to progress its beneficial or charitable mission. Every nonprofit requires a board of directors. The names, addresses, and other information regarding the directors are required to file the Articles of Incorporation with the Secretary of State.
Each state requires a minimum number of board members. This number typically ranges from 3 to 5 members. Each individual must meet the eligibility criteria set by the state to become a board member for a nonprofit. The criteria involve variables like the legal age, residency, citizenship, etc.
What is the Role of Directors in a Nonprofit?
The biggest responsibility of the board member is to act as the advocates of the nonprofit’s mission. They are also responsible for appointing a talented CEO to streamline the daily management activities and processes of the nonprofit. A nonprofit’s board of directors has three legal responsibilities.
- Duty of Care: It entails taking care of the nonprofit and its mission by ensuring prudent use of all available assets, including the facility, monetary funds, and people.
- Duty of Loyalty: The Duty of Loyalty calls the board members to identify and disclose any conflicts of interest. They must make the best decisions for the organization without weighing in their personal interest in any way.
- Duty of Obedience: Under the Duty of Obedience, the board members are responsible for ensuring that the organization follows all applicable laws, rules, regulations, including its own bylaws. They must make sure that the nonprofit does not divert from its stated mission and continue to progress in the right direction.
According to Shai Goldstein, the CEO of A2Z Filings, “The role of board members in a nonprofit transcends the legal duties as they also play an extremely significant role in developing the nonprofit’s culture by providing invaluable guidance and foresight. They serve as an ambassador of the organization and may play a vital role in fundraising!”
Let’s take a look at some other responsibilities of the board of directors in a nonprofit.
· Determine the Purpose and Mission of the Nonprofit
One of the most important responsibilities of the board of directors is to create a mission statement, which will become the basis for developing the purpose of the organization. The mission and purpose lay the foundation of the organization.
· Provide Financial Oversight
The directors also oversee the budget to ensure the nonprofit has adequate funds at all times. They provide financial oversight and monitor the financial activities to ensure the cost of programs, services, and other activities meet the budget. They also employ effective financial management practices to prevent theft, loss, or any kind of confusion.
· Maintain Accountability
Apart from fulfilling the legal duties and acting as judiciaries of the assets, the board members also ensure the integrity and maintain accountability on every level in the nonprofit. They help develop and maintain a code of ethics for the nonprofit.
· Recruit New Board Members When Required
The board members have a crucial role to play when it comes to welcoming new members on the board. However, in the interest of the nonprofit, this duty is often performed in collaboration with the CEO or the Executive Director.
· Develop, Monitor, and Strengthen the Nonprofit’s Programs
Board members decide the budget for programs and services of the nonprofit. Therefore, it is essential they have detailed knowledge of participation trends and people served so that they can allocate budget correctly.
Can the Board Contain Family Members?
While the nonprofit’s board of directors can contain family, it is not always the best approach. The general rule of thumb is to include at least three board members who are neither family members nor have business ties with other members. If you do have family members on the board, this information must be disclosed to the IRS.
The guidelines set by the IRS indicate that no more than 49% of the members can be related by blood or marital relationships. This is to avoid insider transactions and ensure that the assets of the nonprofit are not used for personal gains by any member of the board.
The Bottom Line
The board of directors is perhaps the greatest asset of a nonprofit organization. The better they understand and perform their duties, the more the organization will progress. If you are setting a nonprofit organization, one of the first things you need to do is appoint the board of directors, and A2Z Filings will take care of the rest.
We specialize in setting up nonprofits and helping them acquire non-exempt status as smoothly and swiftly as possible. We can also develop business plans and grant proposals to ensure your nonprofit has adequate funding. Contact us today or visit our website to learn more about our services.