Updated January 2019
“An active and engaged board is important to the success of a public charity and compliance with the tax law.” – Compliance Guide for 501 (c)(3) Public Charities, IRS.gov
Ready to apply for 501(c)(3) status, but unsure of how to form your board of directors? You’re not alone! Harbor Compliance fields many questions from nonprofit founders regarding their board of directors. So we asked our Compliance Specialists to round up the top seven questions we get from clients. From bylaws to age minimums, browse the list of common board member questions and answers from our compliance experts.
Every state requires a minimum number of directors. That minimum typically falls between three and five. Most states maintain a minimum set of qualifications for directors, which can include legal age, natural citizenship, and residency. To determine your state’s specific requirements, visit our Nonprofit Governance by State page.
Yes, but be aware that the IRS encourages specific governance practices for 501(c)(3) board composition. In general, having related board members is not expressly prohibited. However, the IRS reviews the qualifications and composition of your nonprofit board, both when you apply for your exemption and annually on your Form 990. The reason for this is to help ensure that public funds are used for their stated purposes, and guards against insider transactions and other misuse of charitable assets.
For most organizations, a good rule of thumb is to choose a minimum of three board members that are not related to you through family or business ties (unless more directors are required by your state). While you can have family members or business partners on the board, you’ll need to properly disclose that to the IRS.
If you are willing to not get paid for your service, then you can serve on your organization’s board. You should not be getting paid and serving as a board member. If you are going to be paid staff and want to play a key role with the board of directors, consider adding language to your bylaws about being a non-voting board member. To echo that sentiment, The National Council of Nonprofits advises that charities do not compensate board members. Note that if board members are paid more than $600 per year, the nonprofit must issue them an IRS Form 1099-MISC. Charities can pay reasonable compensation for services provided by officers and staff.
Again, it is vital to avoid conflicts of interest between yourself, board members, and the charitable organization’s mission. Keep in mind that your annual Form 990 asks direct questions about financial transactions between the organization and directors, officers, key employees, related individuals, and entities.
Board members are responsible for making decisions and setting strategic goals for your nonprofit. These decisions ensure that the organization’s charitable purpose is adhered to and that charitable assets are properly allocated. Board members also have a duty of care to ensure fundraising compliance and responsible governance. Choosing the right board members will help promote your mission and help you achieve the greatest impact in your community.
Creating your nonprofit’s bylaws, board of directors, and conflict of interest policy are important to establishing your 501(c)(3). You can start on these steps as soon as you file your articles of incorporation, and you must complete them before you can file your 501(c)(3) application. Requirements aside, a board of directors is vital to meeting your nonprofit’s mission. A strong board can bring further community and business connections to your organization. Those relationships are reason enough to prioritize board recruitment!
Choosing a nonprofit board doesn’t need to happen immediately. Most states do not require you to list a board of directors on the articles of incorporation, nor do you need a board to obtain an EIN. That means you can brainstorm and choose the people you’d like to sit on your board while you wait for incorporation status.
Look to individuals who are excited about being ambassadors for your nonprofit’s mission. Unsure of where to start? Turn to your community! Consider attorneys, accountants, civic leaders, local influencers, and specialists whose careers blend nicely with your mission. The more diverse your board is, the more skills, talents, and connections they’ll bring to your organization. If you’re operating in a public space, learn who has influence in that space and prove why they should let you in.
Nonprofits are expected to operate without conflicts of interest to protect your organization from situations where individuals might privately benefit from the nonprofit’s actions. Keep any potential conflicts of interest in mind when selecting board members. An example would be contracting with a vendor which is owned by a board member.
The minimum age requirements for board members varies by state. Keep in mind, however, that several states have laws clearly prohibiting youth from serving as board members. In some states, such as New York, authorization for youth to serve as board members is dependent on the nonprofit’s activities. In addition, some states remain silent on the issue (but that should not be interpreted as authorization). In general, it is preferable for board members to be over 18 years of age so you can confidently proceed with board member decisions in any and all states.
You can count on Harbor Compliance to help you provide a sustainable, compliant foundation for your nonprofit. As we guide you through your nonprofit formation, we’ll let you know when it’s officially time to form your board and answer your questions relating to board recruitment. We then prepare your Articles of Incorporation, bylaws, and 501(c) application to meet state and federal requirements. Contact our team to get started today!