In the early stages of a nonprofit’s existence, the board may be involved in virtually every decision made on behalf of the organization. As the organization matures, the board will increasingly delegate decisions to staff and volunteers. As this happens, boards will need to bear in mind when their approvals are required by law, and when decisions should be retained by the board as a matter of good governance.
The many sources of rules governing nonprofit boards
A nonprofit’s board must consider several sources of rules governing when its approval is required for an organization to take certain actions. Both state and federal law—especially tax law—can have important explicit or implicit requirements for nonprofit boards. State law rules governing board approvals vary according to the type of organization that is involved. Most such matters tend to relate to the raw existence or viability of the organization. For example, the sale of all or substantially all of the property of a California nonprofit corporation must be approved by its board. State fiduciary duty law and IRS best practices guidelines require boards to give close consideration to any transaction that could create a conflict of interest or concerns about self-dealing.
Another source of rules is the organization’s governing documents. Organizations generally have a lot of flexibility to decide when the board’s approval is required for certain actions. The organization’s bylaws, board charter, or specific policies governing things like hiring, investments, or fundraising can establish thresholds for when professional managers or volunteers need to escalate decisions to the board level.
Given all these sources of rules and requirements, it’s difficult to set out a universal list of topics that will require action by a nonprofit’s board. But there are some general topics that generally apply to all nonprofits, including these:
- Transactions involving a commitment of a material amount of money, as determined by the organization’s size and resources.
- Transactions involving changes to the organization’s legal structure or existence, such as mergers, windups, and so forth.
- Major hiring decisions.
- Any transaction involving a board member, a director’s business, or a director’s family member or one of their businesses.
- Changes to the organization’s mission.
- Adoption or amendment of the organization’s governing documents and policies.
The Church Law Center of California counsels religious and secular nonprofits on all matters of institutional governance. We work closely with the boards of our clients to help them stay on top of their management obligations. To learn how we can help your organization call us today at (949) 689-0437 or reach out to us through our contact page.