10 commandments for board of directors of nonprofits

8/18/2019 10 Commandments for Board of Directors of NonProfits

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ten commandmentsprudent act ivi t ies for the board of directorsof a not -for-p ro fi t corporat ion


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he directors of a not-for-profit corporation are bound by two general types of legal duties:

(the duty to perform their responsibilities in good faith, in a manner reasonably believed to be in the best interests

of the corporation, and with such care as an ordinarily prudent person would use in similar circumstances); and

dut

y of loyalt

y (the duty to keep the interests of the corporation paramount above personal interests when acting for

or on behalf of the corporation). these “commandments” provide examples of some of the actions a board of directors

should take to act in accordance with its legal duties.

T


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I. thou shalt hold regular meetingsThe board does not have to meet each month, but it should hold regular meetings. Thisinformed of the activities of the corporation and for the board to provide the appropriat

II. thou shalt ensure that the corporation holds an annual meetingThe annual meeting of members is held once a year to elect new directors and vote on o

by-laws. In most corporations, the directors should elect the president, treasurer, clerk oof directors immediately following the annual meeting.

III. thou shalt keep minutes of board and committee meetingsMinutes are important. They are a record of the care and diligence that the board exercthe corporation’s business. Minutes should not be a stenographic record of the proceediinfluenced major board decisions. They should explain the reasoning behind decisions t


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IV. thou shalt ensure that all government filings are made on timMany federal, state, and local governmental agencies will impose penalties on a corptimely basis. A prudent board will ensure that the penalties are avoided.

The most important filings for a Massachusetts not-for-profit corporation include the foForm PC with the Attorney General’s office within four and one-half months after tAnnual Report with the Secretary of State’s office on or before November 1 of eachForm 990 (tax information return) with the Internal Revenue Service if the corporForm 941 and Form M-941 (employee income tax withholding) with the Internal RDepartment of Revenue within 30 days after the end of each quarter.

In Massachusetts, not-for-profit corporations do not automatically have an exemptionapplications for abatement must be filed within the applicable time periods.


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V. thou shalt ensure that employment-related taxes are paid on timOccasionally, when a corporation experiences poor cash flow, the corporation will be tthe associated withholdings of employment-related taxes. Failure to pay employment

and officers and directors may be held personally liable for the full amount of any unp

VI. thou shalt adopt and follow a conflict of interest policyA director’s duty of loyalty to the corporation requires that the corporation’s interests cconflict of interest policy and follow its procedures for any transaction that may presen

particular procedural rules that must be followed in order to avoid draconian monetarytransactions. The board should ensure that these procedures, in addition to its own con

VII. thou shalt approve and manage an annual budget The board must take responsibility to adopt a written budget that projects sufficient rev

corporation in each year – whether the revenues come from grants or gifts, or the prov


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VIII. thou shalt approve the salary budget A prudent board does not delegate this function, but rather establishes a frameworother managers may fix the salaries of the corporation’s employees. The board canand manage the annual budget unless it exercises oversight responsibility with res

IX. thou shalt review the auditMassachusetts corporations with annual revenues of more than $250,000 are requirewith the Attorney General’s office. Massachusetts corporations with annual revenuesfile financial statements certified by an accountant with the Attorney General’s officreviewed by the board before being filed. Further, if the corporation has a commit

should talk with the auditor without any staff present. The auditor works for the bThe audit committee should use this time with the auditor to learn about any matternot be communicated through the staff.


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X. thou shalt approve all bank accounts and all loansEach bank has a set of corporate votes taken by the board of directors, authorizing the op borrowing of funds, and specifying which officer can withdraw funds from the accountsthe board must formally adopt the votes for the account so that the corporation’s clerk othe bank form certifying the votes. Remember: the corporation is liable for the funds bo

Some states and the Internal Revenue Service have proposed legislation imposing some o

Sarbanes-Oxley Act 2002 on nonprofit corporations, or are considering some of the provi for nonprofit corporations. We are monitoring these initiatives.

This pamphlet contains general information only and does not constitute specific legal advice. Please d

or Richard Schaul-Yoder of our Nonprofit Practice Group:

shirin philipp [email protected] richard schaul-yoder rsy@foley


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10 commandments for board of directors of nonprofits

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