The concept of who owns a nonprofit organization can be hard for some to grasp, especially given that the answer is, “No one“, not even the Founder, or “Everybody“; a nonprofit is chartered by a State government, belongs to the public, and serves the public interest. There are several different types of business entities. For-profit companies make up most of them. Here are a few that all have an owner or owners:
- Sole Proprietorship — one person who conducts business for profit.
- General Partnership — two or more individuals as co-owners
- (For-profit) Corporation — ownership by the shareholders
- Limited Liability Company (LLC) — ownership by the members rather than shareholders
With the exception of the LLC under some circumstances, none of these business structures can be used for nonprofit organizations. Nonprofits are Corporations that cannot be sold. Some states refer to nonprofit corporations as non-stock corporations. The Board of Directors is charged with advancing the public good and are legally bound to “exercise reasonable care” when they make a decision for the organization. Many states have laws governing the functions of the board of directors of nonprofits and the conduct of board members. For instance, a nonprofit board must oversee the nonprofit organization’s operations and make sure that its staff and volunteers act legally and ethically.
There are three types of 501(c)(3) nonprofits; Public Charity, Private Foundation, and Private Operating Foundation. About 90% are public charities.
The Board of Directors is the governing body of a nonprofit. Individuals who sit on the board are responsible for overseeing the organization’s activities. Board members meet periodically to discuss and vote on the affairs of the organization. Board memberships are not set up to be permanent positions; most organizations have terms set up for board members, which typically fall between two and five years.
Governance is the term for high-level strategy, oversight, and accountability. Management is the day-to-day operations of a nonprofit. Ideally, a nonprofit’s governance team is different from its management team, which is made up of paid or volunteer staff members. Board members are typically not paid.
The Board of Directors, as a governing body, should focus on the organization’s mission, strategy, and goals. Staff members are responsible for the implementation of the mission. Having dual-capacity board members can often lead to problems between a nonprofit’s mission and how it operates.
BoardSource’s Board Self-Assessment lays the foundation for setting board development priorities and motivating board members, individually and collectively, to strengthen the full board’s governance performance and practices. By establishing a common understanding of board roles and responsibilities and measuring a board’s performance against these recognized roles and responsibilities, the board can focus on what’s critical for success.
For the platinum level, GuideStar asks questions about Board Orientation and Education, CEO Oversight, Ethics & Transparency, Board Composition, and Board Performance. For example, “Has the board conducted a formal, written self-assessment of its performance within the past three years?” BoardSource, formerly known as the National Center for Nonprofit Boards, has a vision of a world where every social sector organization has the leadership it needs to fulfill its mission and advance the public good. Its mission is to inspire and support excellence in nonprofit governance and board and staff leadership.
Every nonprofit should have Bylaws. The Bylaws are the internal rules of governance that the organization’s board is bound to operate within. Bylaws contain specific rules that spell out, among other things, the responsibilities of board members, as well as things like the length of terms (1 year, 2 years, etc.) and the processes for removing and adding board members.
Typically, a nonprofit has three officers serving the role of President, Secretary, and Treasurer. Officer roles and their terms, as well as those for other board members, should be specifically defined in the organization’s Bylaws. A nonprofit’s Bylaws are considered a legal document that dictates how the organization must be governed.
There may be other people who advise the Board of Directors, such as the Executive Director, senior staff members, outside consultants, or possibly members of an Advisory Council. Typically, none of these people are voting members of the Board of Directors; they are advisors only, not decision-makers. Only full board members can vote at board meetings.
REFERENCES
Greg McRay, The Foundation Group, Who Really Owns a Nonprofit?
(May 10, 2019, accessed 03/06/2021)
https://www.501c3.org/who-really-owns-a-nonprofit/
Foundation Group, What is a 501(c)(3)
(accessed 03/06/2021)
https://www.501c3.org/what-is-a-501c3/
Greg McRay, The Foundation Group, A Nonprofit Board of Directors – What is a Board?
(December 11, 2014, accessed 03/06/2021)
https://www.501c3.org/nonprofits-board-directors/
Greg McRay, The Foundation Group, Nonprofit Board Members – Choose Wisely
(May 4, 2017, accessed 03/06/2021)
https://www.501c3.org/nonprofit-board-members-choose-wisely/
Greg McRay, The Foundation Group, Nonprofit Bylaws – The Dos and Don’ts
(May 18, 2017, accessed 03/06/2021)
https://www.501c3.org/nonprofit-bylaws-the-dos-and-donts/
Joanne Fritz, Basic Duties and Role of Nonprofit Boards
(March 6,2020, accessed 03/06/2021)
https://www.thebalancesmb.com/what-the-heck-do-nonprofit-boards-do-2502281
BoardSource, Roles and Responsibilities
(accessed 03/06/2021)
https://boardsource.org/fundamental-topics-of-nonprofit-board-service/roles-responsibilities/
BoardSource, Assessing Board Performance
(accessed 03/06/2021)
https://boardsource.org/board-support/assessing-performance/
BoardSource, Board Self-Assessment
(accessed 03/06/2021)
https://boardsource.org/board-support/assessing-performance/board-self-assessment/
Nonprofit Times Publishing Group, Candid.
(February 5, 2019, accessed 03/06/2021)
https://www.thenonprofittimes.com/npt_articles/foundation-center-guidestar-merge-creating-mega-data-portal/
GuideStar and The Foundation Center merged to form Candid
(accessed 03/06/2021)
https://www.guidestar.org
BoardSource, GuideStar Profile
(accessed 03/06/2021)
https://www.guidestar.org/profile/52-1681375
Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.
David Robert Lambert is a Certified Nonprofit Accounting Professional who is well-versed in Nonprofit Governance. Over the last 40 years, he has served on nearly a dozen nonprofit boards.
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David Robert Lambert 