A nonprofit organization is formed in the state where it is based. In the case of charitable charities, incorporation comes before filing for IRS tax-exempt status. You won’t be able to apply for a tax exemption with the IRS until you’ve incorporated. Some small charity organizations do not incorporate, but the benefits and drawbacks of doing so demonstrate that doing so makes sense for the vast majority. Importantly, incorporation reduces the board of directors’ personal culpability.
Board of Directors Legal Responsibilities
Many states have regulations that control the responsibilities of nonprofit boards of directors and the behavior of board members. A nonprofit board, for example, must monitor the organization’s activities and ensure that its personnel and volunteers are acting legally and ethically. The following concepts of nonprofit company law are often used by states.
Obligation of Care
A board member must participate in corporate decision-making and planning. When making decisions for the organization, board members must use reasonable caution.
In a comparable scenario, a “ordinary sensible” individual would use reasonable caution.
Loyalty is a responsibility
A board member must never exploit knowledge gleaned from his or her position for personal advantage and must always act in the organization’s best interests. Members of the board must avoid or seem to avoid conflicts of interest.
Obeyance is a responsibility
A board member must be committed to the mission of the nonprofit organization. He or she cannot act in a manner that contradicts the organization’s objectives. The public has faith in the board’s ability to manage contributed finances in order to carry out the organization’s objective.
Your board must also:
Ascertain that the organization adheres to the law.
All major contracts must be approved.
Attend the majority of board meetings to demonstrate your commitment to the company.
Employ and manage the executive director, who in turn employs employees.
Examine financial policies, approve budgets, and examine financial reports to ensure the organization’s financial stability.
Ascertain that your board members are aware of and committed to their responsibilities
When your board members agree to serve on the board, make sure they understand the gravity of their responsibilities.
A sit-down discussion with the CEO and board president is recommended to ensure that a potential board member understands his or her obligations.
The sincerity of their board commitment will most likely impress the new board member or potential members at such a meeting. A summary of board obligations is especially crucial for new members who have never served on a board before, as well as those recruited from your volunteer pool.
While volunteers contribute a wealth of information about how the organization operates, they may be unaware of what a board of directors performs or that they are required to assist with fundraising.
The next phase after the initial meeting is training. A group training works effectively if you have multiple new board members. The organization’s history, mission, rules, activities, and more are all available to board members.
Include a tour of your building, introductions to key personnel, and opportunity to watch your programs in operation. Give incoming board members plenty of reading material to undertake on their own.
Match Board Members to the Needs of Your Organization
Your board can provide invaluable pro bono expertise in areas where you want knowledge but cannot afford professional assistance. Your board members may, for example, have expertise in:
- Finance
- Legal and human resources, as well as programmatic sectors such as social services, education, religion, and so on.