Every corporation is required to have directors and officers. This includes public benefit corporations. Your nomination to the role of nonprofit board member is a tremendous honor, and also a great responsibility. As a board member of a nonprofit organization, you are subject to specific guidelines, set forth by the State of California.
The Role of Nonprofit Board Members
It is strongly recommended that in addition to a president, chief financial officer and secretary, any nonprofit also have a minimum of three board members. Exactly how many members a nonprofit board has is based on the needs and by-laws of the organization. Board members of a nonprofit public benefit corporation are responsible for overseeing the affairs of the organization.
Boardmembers may serve many roles, but they all should adhere to the below:
- Act in Reasonable Care
Boardmembers act in reasonable care when they read organizational materials, attend board meetings prepared and actively participate with questions.
- Organization Interests Above Personal
Boardmembers are expected to put the nonprofit’s interests above their own and avoid potential conflicts of interest.
- Loyalty to the Mission
Boardmembers must believe in the mission and ensure that the nonprofit follows all international, federal, state and local regulations as they may apply.
- Fiduciary Protector
Boardmembers protect the financial viability of the nonprofit. For example, Boardmembers are entrusted to monitor financial risk indicators and understand the financials of the nonprofit. Furthermore, they ensure there is a system of internal controls to protect the nonprofit, and approve a budget that leads the nonprofit towards financial sustainability.
Although board members may delegate many of their responsibilities to other officers and employees, board members are responsible for all corporate decisions.
California Guidelines
According to state statutes, board members may be elected or designated by the current board members. Also, the provisions regarding election, resignation, terms of office, resignation and quorum must align with state statutes and be included in the organization’s by-laws.
Additionally, nonprofits:
- must not pay excessive compensation to any employee or member of the board of directors, and
- a committee that the board authorizes must review and approve the compensation of the president, CEO or CFO to ensure that it remains reasonable.
In most cases, nonprofit directors do not receive compensation and serve as volunteers, though some are reimbursed for out of pocket expenses such as mileage or meal costs.
Liability of the Board of Directors
California has a complicated set of statutes regarding the liability of a board of directors for a nonprofit organization. It is important to note that though this is not always the case, a member of the board of directors for a nonprofit may indeed be held personally liable and be required to repay damages when he or she has breached the duty of care or loyalty to the nonprofit organization. A director who acts in good faith and with reasonable care will not be held liable to the corporation, according to state law.
Interested Persons
It can be difficult to make decisions regarding the best interest of a nonprofit organization when your own business is involved. Therefore, there are strict guidelines regarding conflict of interests. If a director has a material financial interest in a transaction, this could be considered a conflict of interest. Fifty-one percent of the Board must be considered “disinterested,” or not asked to act in any role other than board member, according to California law.
Before committing to a position on a board of directors, it’s advisable to review the by-laws of an organization. Serving a nonprofit organization as a director can be an extremely rewarding experience, but also requires a strong commitment to the organization and California law.
Our nonprofit audit services give our clients peace of mind and help them decide how to best utilize their financial resources in the future. If you have any questions about our nonprofit services, one of our CPAs would be happy to speak with you at (925) 933-2626 or, email us at info@winttercpa.com.
