Nonprofit Board of Directors

Many states require a nonprofit corporation to have an initial board of directors when you file your articles of incorporation and to maintain a minimum number of directors at all times. The requirements and responsibilities of a nonprofit board of directors are defined in the statutory corporations code of the state where the nonprofit is incorporated. Further rules are defined by your corporate bylaws. Be sure to review your state’s nonprofit code to fully understand the rules that apply to your directors.

Directors are your nonprofit’s strategic leaders, making decisions and setting goals.

  • The board of directors sets the mission and goals; the Executive Director/CEO carries out the strategy.
  • Directors have limited power; they make decisions as the board of directors with a quorum, or minimum number, present and voting on those decisions.
  • The vast majority of nonprofit directors in the United States are volunteers. They are not compensated.
  • The directors elect officers of the board. These officers usually include a President/Chair, Secretary, Treasurer, and Vice President/Vice Chair.
  • Directors of a properly formed and maintained nonprofit corporation have limited liability. Their personal assets have protection from debts and legal action against the nonprofit.

The election of directors is defined within the corporate bylaws. Directors may be elected by the board, members, or may hold an office ex officio.

  • Election by the Board - The self-perpetuating boards of directors of many public charities are comprised of directors who elect (and/or re-elect) the next directors.
  • Election by Members - Most mutual benefit corporations have a board of directors elected by members. Members cast votes to elect the directors. The directors serve as representatives of their constituents.
  • Ex Officio - An ex officio director is a director because of another position previously or currently held. For example, the bylaws may state that the Executive Director/CEO is an ex officio director without voting rights.

In addition to their many responsibilities, directors are obliged to meet three fundamental legal duties.

  • Duty of Care - Each director must demonstrate a duty of care through attendance, staying informed, and making decisions in the best interest of the organization and its mission.
  • Duty of Loyalty - Directors are prohibited from personal gain through their position, must protect confidentiality, and must disclose and avoid potential conflicts of interest.
  • Duty of Obedience - Directors carry out their duties in obedience to the nonprofit’s mission and corporate purpose, including compliance with internal corporate and external government regulations.

As you seek to fully understand the requirements for your board of directors, understanding state law is essential. There is a difference between saying “Many states require a nonprofit corporation to maintain a minimum number of directors at all times,” and saying “New Hampshire requires a minimum of 5 voting directors. They need not be residents of New Hampshire or members of the nonprofit.” Know the specific requirements for a board of directors in your state.

Key Takeaways:

  1. You may be required by your state to identify your board of directors when filing your articles of incorporation.
  2. State law and your corporate bylaws define the legal duties and other specific requirements for how your board of directors functions.
  3. Know and abide by requirements for your board of directors as outlined in your state law.
Continue reading “How Do You Incorporate?”

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