Selecting a nonprofit board of directors is vital to your nonprofit’s success. Collectively, the board of directors strategizes, sets policy, and makes decisions for the nonprofit. Individually, each director should have certain qualities and attributes that adds value to your organization. Lastly, your nonprofit must meet the minimum threshold for directors, which depends on your state and the IRS.
This post will explore those state and IRS requirements, and give your organization some insights on successful board recruitment.
What is a board of directors?
The board of directors is collectively a team of strategic leaders. They make decisions and set strategic goals for the nonprofit. Individual directors have limited power, and most key decisions are made by the board as a whole, or at least a majority thereof. This is a good thing! By definition, nonprofits have checks and balances that ensure that the organization’s charitable purpose is adhered to, and that the nonprofit properly allocates its charitable assets. For more information on what a board of directors is and is not, visit this page.
Minimum state requirements
Every state requires a minimum number of directors. Typically, the number is between three and five. Most states maintain a minimum set of qualifications for directors, which can include legal age, natural citizen, and residency. Nonprofits that will become membership organizations have a separate set of requirements for members. To determine your state’s specific requirements, visit our Nonprofit Governance by State page.
Additional rules and duties of your board of directors will be determined in the bylaws.
Minimum IRS requirements
The IRS does not require a minimum number of directors, but if the number is fewer than three, you’ll have a hard time getting approval. Additionally, the IRS requires that no more than 49% are related by blood or marriage. That means if a husband and wife are two board members, there must be at least three additional, independent board members. This is to “guard against insider transactions that could result in misuse of charitable assets.” (Source). When you apply for 501(c) status, you will disclose to the IRS information about your board, as well as any potential conflicts of interest between them. If the IRS doesn’t like what it reads, they will delay approval of your application until the conflict is resolved.
Quite possibly the original board of directors.
Whom should I choose for my board?
Your nonprofit’s success is directly tied to the leadership you attract. As it relates to your particular organization, you might recruit board members who share a strong belief in your nonprofit’s purpose or ideology, and have practical experience in your work. You might also recruit board members who are particularly generous, or can use their connections in the community to further your mission.
The IRS weighs in further, writing “An active and engaged board is important to the success of a public charity and compliance with the tax law. A governing board should be composed of persons who are informed and active in overseeing a charity’s operations and finances” (Source). In plain English, choose board members who are motivated, engaged with your mission, and are responsible enough to run a nonprofit.
When do I need to have a board?
Ideally, as early as possible. The board of directors will steer the early direction of your nonprofit, and collectively, your brainpower, connections, and money will greatly assist in the 501(c) formation process.
It is a misconception, however, that you must have a board of directors before you incorporate. It is true that in a few states, you will disclose the names of initial directors on your Articles of Incorporation. In many more states, you can begin the process of incorporating, and can seek board members during or after the incorporation step.
Can Harbor Compliance help me?
Yes! While we’re not hitting the streets finding people for you, we know exactly what your state and the IRS require. As we guide you through your nonprofit formation, we’ll let you know when it’s time to have a board, and answer your questions relating to board recruitment. We then prepare your Articles of Incorporation, bylaws, and 501(c) application to meet the state’s and IRS’s requirements.
Our professional service and expertise are just minutes away. You can sign up through our website, and we’ll contact you within a business day to begin your nonprofit formation.