Top 4 Requirements of Your 501(c)(3) Board of Directors

You’ve drafted those bylaws, and you’re ready to form a Board of Directors. It isn’t just about selecting individuals who believe in your organization’s mission or who can positively influence the organization’s growth – there are some minimum requirements that each board member needs to meet in order to qualify for a spot. These 501(c)(3) board of directors rules vary by state, but it’s bewe will identify some of the general basics that will help you get started forming your board.

1. Know Your Board of Directors Requirements

The IRS minimum required number of individuals that need to sit on an organization’s board of director is 3, compromising of a President, Secretary , and Treasurer. This can be confusing as the states may have conflicting requirements. If you want 501(C)(3) status, then you should meet the minimum three (3 requirement. Remember, you can be a nonprofit, without having a 501(C)(3), although this is often not advisable. Most boards tend to have five or seven members: uneven numbers help avoid ties during voting matters.

States may stipulate the term each board member should serve. They may also outline the types of necessary officers that must sit on the board, such as a secretary, a treasurer, a president, and so forth. The state may determine how often your board of directors should meet (annually, quarterly, etc).

But seriously, are they? It’s important to understand the existing relationships between board members, whether they’re blood related or business affiliated, this stuff matters to the IRS.

Having related board members is not explicitly prohibited by the IRS, but they will review the composition and qualifications of the board of directors annually via Form 990. The annual review is conducted to validate that public funds are being used for intended purposes. It’s also a protection against abuse of charitable funds.

In order to avoid complications, choose three board members not related by blood or business. As mentioned, although you can technically have board members who are related by blood or business, that information will need to be disclosed to the IRS and they can’t make up a majority of the board.

Keep in mind that the time may come when you need to remove or add a board member. This could disrupt the delicate balance of your board, especially if some of your members are related. Public charities must have a board with a majority of unrelated members – so keep that in mind when you are adding or removing members! Always add or remove board members in accordance with your bylaws – this is where you will internally have your 501(c)(3) board of directors rules defined.

3. Do Board Members Get Paid?

Nonprofits should generally not compensate persons for service on the board of directors. Nonprofits may pay reimburse reasonable expenses for services provided by officers and staff. Board members are always volunteers. While board members can fulfill paid staff roles (if they exist), the majority of board members (51% or more) cannot receive any compensation from the organization. For example, in an organization with three board members, one person can also serve as the organization’s Executive Director and draw a salary. The other board members cannot receive compensation, even if they also fill employee roles.

If a staff member from the organization wants to join the board of directors, you should first visit your organization’s bylaws to see if it’s permitted. In order for the staff member to receive his/her paycheck for their work at the organization, they have two options:

Opt out of sitting on the board since members are not paid
Become a non-voting board member, which will allow the individual to earn its paycheck as a staff member at the nonprofit

To sum it up, board members should not get paid. And if you want to be a paid staff member, you could be a non-voting board member only if your bylaws include this as a permissible 501(c)(3) board of directors requirement.

4. Follow the Fiduciaries

Nonprofit corporate board members are fiduciaries, which means board members have certain duties and responsibilities to carry out and follow.

Legally, nonprofit board members have three duties: the duty of care, loyalty, and obedience. These duties regulate conduct and depending on the state, they are often within the court of law to determine whether or not a board member acted improperly.

Duty of Care: This duty describes the competency and temperament in which a board member must carry out their service. When making decisions, a board member has the duty to exercise reasonable care.
Duty of Loyalty: A board member should act faithfully to the organization. The individual should never use information obtained about the organization for personal profit – instead they should make decisions for the sole benefit of the organization.
Duty of Obedience: This duty is concerned with the nature in which a board member conducts itself – they should not act in ways that are antithetical to the mission and the organization’s central goals. This duty also stipulates that board members obey the law and the inner 501(c)(3) board of directors requirements.

The Ideal Board Member…

Works well individually and within a group
Thinks creatively, listens well, and analyzes
Has skills that you may not have, such as soliciting funds, recruiting board members, reading and understanding financial statements
Is honest, empathetic
Is a clear and effective communicator
Has a good moral character and is generally liked by the public
Advocates for the organization’s benefit

Did you know that nonprofit board members often make regular personal donations to the organization they’re a member of? Also, they often volunteer additional time to help out at events. Their fundraising commitment goes hand-in-hand with using their personal and professional networks to help grow the organization in a positive direction. It is handy and effective for nonprofit boards to conduct self evaluations cyclically in order to ensure that members are growing in a positive direction and using their energy and expertise for the benefit of the organization and not personal gain.