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The Board of Directors’ Role in a Non-Profit Organization


In a traditional for-profit company, a Board of Directors is there for one primary reason: to safeguard the interests of the shareholders. Of course, the shareholders’ interest is in maximizing the value of their shares, and thus, in ensuring that the company operates as profitably as possible.

But while the motivation to maximize profit is there in for-profit companies, things are a bit different in nonprofit or not for profit companies. These companies can make money, but there are no shareholders, and the money the company earns cannot be distributed to either shareholders or officers or directors.

So if a board can’t maximize profits in a not for profit company, what does a Board of Directors do in a not for profit company?

The Board’s Role

The role of the Board in a not for profit company is arguably even more broad than it is with a for-profit company. That’s because the nonprofit’s Board doesn’t protect shareholders, it protects other stakeholders that have an interest in the nonprofit organization.

For example, the Board may ensure that grants are spent a certain way, and in accordance with the terms of the grant. A Board will ensure that fundraisers’ moneys are spent in furtherance of the mission of the company. The Board also ensures the legal operation of the company itself, by ensuring that the money spent by the company furthers its mission, or that the expenses or salaries being paid by the company, do not exceed what is a reasonable budget.

The Board also is charged with protecting the not for profit companies image, for example, by ensuring that the company avoids legal problems, or avoids associating itself with any business or operation that could cause the company to be seen in a bad light.

Unlike with a private company, where raising money is dependent on the functioning of the company in a not for profit, the Board may have more obligation to fundraise, or at least, to oversee the fundraising opportunities of the organization.

This isn’t to say that the Board has to handle every affair of the company, or micromanage the company’s officers. The role and extent of the Board will often depend on the Bylaws or other corporate documents of the nonprofit organization.

Fiduciary Duties

The Board of a nonprofit does have the same overall fiduciary duties as a for profit company would. So, for example, a non profit director could not redirect fundraising or grant or public relationship opportunities to a competitor, or to the Board member himself.

The Board member of a nonprofit has both a duty and obligation to monitor corporate officers, to ensure they are putting the company first, and to investigate any belief that monies are being misused, misdirected, or used for anything other than corporate purposes.

Questions about your nonprofit organization and its governance? Call the West Palm Beach business litigation attorneys at Pike & Lustig today.




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