In a nonprofit without voting members, the board of directors has the ultimate decision-making authority in a nonprofit corporation. Boards will frequently delegate some of this authority to the chair, president, secretary, treasurer, executive director, and other high-ranking officials, allowing them to make decisions for the corporation between board meetings.
The extent to which a board participates in its daily operations varies. Some boards, known as “active boards,” vote on nearly every decision, effectively managing the organization. This model is common in very small or early-stage organizations that lack staff. Larger, staffed organizations operate with boards that are not involved in the organization’s day-to-day affairs. In those cases, the board delegates authority to officers and executives, voting only on large-scale decisions.
Fundamental Decisions Handled by the Board
Whether your board is a hands-on board or a policy-making board, several fundamental decisions must always remain in the board’s hands:
Election of Leaders.
While nonprofit corporations do not have owners, they have leaders who exercise control. The power to elect, replace, or remove those leaders – including the president and the executive director – is a vital board function, as these decisions will significantly impact the organization’s success or failure.
The documents that govern a nonprofit, such as its articles and bylaws, are altered through amendments. The board should actively implement all modifications, as they will determine the organization’s operating rules.
The board should approve the annual budget and limit any unbudgeted expenditures. A board-approved operating budget will help to keep things under control financially. It will direct the chief executive in deciding what expenses can be paid without additional board approval.
Establishing Internal Financial and Legal Controls.
Boards should adopt policies and procedures (“P&Ps”) to ensure legal and financial compliance. Adopting P&Ps lets the board specify the nonprofit’s officers’ operating procedures. Examples include conflict management policies, signature authority, gift acceptance, record keeping, travel and expense reimbursement, confidentiality, and whistleblowers.
Approval of Significant Financial Transactions.
The board should approve major transactions, including the purchase of real estate, sales of significant assets, the negotiation of loans, and changes in investment policies.
The board should approve any revisions to the nonprofit’s mission statement, the growth or reduction of programmatic initiatives, adjustments to the yearly budget, and any restructuring such as mergers or dissolutions.
The board is responsible for managing conflicts of interest. Failure to manage conflicts of interest can lead to expensive excise taxes, state and federal investigations, and even loss of exemption.
How do Board members decide these matters?
Boards may decide to act at a meeting or via unanimous written consent. No matter the means, any decision reached without completing the proper steps may be contested by a director, officer, bank, title company, or other interested parties. Moreover, failure to adhere to corporate formalities can result in the nonprofit losing its limited liability status, subjecting board members to personal liability.
Holding Board Meetings
For the board to hold a meeting, the meeting must be duly called and announced, and a quorum must be present. Any action proposed at the meeting must be approved by the number of board members specified in the nonprofit’s bylaws.
Call and Notice of Meetings
There are two types of board meetings:
A Regular Meeting
A regular meeting has a specific date, time, and location set by the bylaws or a board decision. For instance, the bylaws may specify that the board must meet in the nonprofit’s main office on the first Monday of each month at 7:00 p.m. The board must agree upon any modifications to this regularly scheduled meeting at a duly conducted meeting. In addition to regular meetings, boards typically hold an annual meeting in which directors and officers are chosen, and the Executive Director’s reports are heard. Regular meetings do not need to be announced, as notice was already provided by the bylaws or given at a previous board meeting.
A Special Meeting
A special meeting is a meeting that occurs outside of a regular meeting and is the result of a unique necessity. Someone authorized by the bylaws to convene a meeting must “call” it to hold a special meeting. An organization’s bylaws should specify who is authorized to call a special meeting – usually the Chair, Secretary, or a minimum number of directors. To “call” a meeting, an authorized person must request that the organization’s secretary give notice of the meeting date, time, and location to each board member.
Special meetings require proper notice. The bylaws should describe the notice requirements of these meetings. Typically, a notice of a special meeting must be given (1) by mail four days before the meeting or (2) by email, phone, or in person at least two days before the meeting. If notice is given by email, the nonprofit must have an electronic consent form on file for each board member, permitting the member to be contacted and receive information via an email address of their choice.
If there was no proper notice of a special meeting, the board may still take valid action if:
- All directors that were not present at the meeting sign (before or after the meeting) a waiver of notice or approved the minutes; OR
- All board members were in attendance, and no one protested the meeting before or when it started.
Meetings via Video or Conference Call
Many nonprofits have board members that reside in different cities, states, and countries than the nonprofit itself. So long as the meetings are properly called and each member is given proper notice, board meetings may be held by conference call and via the Internet.
The only requirement for virtual meetings is that all directors communicate simultaneously, and each director participates in everything going on, including proposing or commenting on specific actions (subject, of course, to the board’s parliamentary rules). In some states, the board members must be able to hear one another simultaneously, which rules out some communication platforms.
Taking Action at a Meeting
A quorum must be present before the board takes formal action at a meeting. As specified in the bylaws, a quorum is the number of board members required for a valid meeting. Typically, a quorum requires a majority of directors in office. Some organizations, however, demand a higher attendance threshold or require the presence of a specific person, such as the president, to reach a quorum.
The bylaws specify how many votes must be cast in favor of a motion for that motion to pass the board. When drafting the bylaws, it is essential to be careful with the language in this section, as that language pertains to directors who abstain from voting. If the bylaws are written in a way that requires a “majority of those present” for approval, then a director who abstains will count as a vote against. However, if approval only requires a “majority of those present and voting,” then a director who abstains will count as a vote in favor of lowering the approval threshold.
The secretary is responsible for recording the meeting’s minutes. The board may designate a temporary Secretary in the secretary’s absence or to assist with notetaking during the meeting. The meeting’s opinions and proposals do not have to be recorded verbatim in the minutes.
Essential components of minutes from meetings should include:
- The meeting’s date, time, and location;
- A list of those in attendance (in person or through conference call) and those not in attendance;
- Discussion of issues and any actions taken; and
- The signature of the secretary.
The board may prepare and distribute drafts of any specific resolutions or reports that will be discussed during the meeting. Those decisions and reports ought to be added as appendices to the minutes. The record book for the nonprofit should contain all minutes.
Taking Action Without a Meeting
If the board is too dispersed to conduct a meeting or to conduct routine affairs, they may act by written consent. This decision, however, must be approved by each active board member. The nonprofit should have written approvals for each board member, making the permission process simple.
A written communication (email, word document, pdf, handwritten note, papyrus, or another document) is sent to the board, and each member (assuming their electronic consent form is on file) may approve via email or electronic signature. In instances of action through written consent, the secretary should be explicit in communicating what action is being taken.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C., licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations nationwide. Ellis also advises donors regarding major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.