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The Role Of The Board Of Directors For A Nonprofit Is Necessary To Ensuring Compliance For A Nonprofit Organization

The Necessary Role of a Board of Directors for a Nonprofit

It often seems that with all the tax money that federal, state and local governments collect, there should be enough funds to go around to meet all the needs of U.S. citizens. Unfortunately, there’s never enough money to go around to meet every need. In addition, governments at every level recognize that nonprofit organizations often respond far better to specific needs than government programs.

Nonprofits form when a group of ordinary citizens comes together with a desire to meet the needs of a group of people within the community that shares a common need. As constituents themselves, nonprofit boards of directors know the constituents they serve better than any government body possibly could. In many cases, the passion and commitment of nonprofit boards far transcend any lack of experience or knowledge of nonprofit leadership on their part.

Forming a board of directors is a legal requirement of nonprofit organizations. While no single person is responsible for running a nonprofit organization, in their role, the board of directors acts as a fictitious person that has the ability to approve and sign contracts, hire staff and engage in business activities.

State governments manage the rules and regulations for nonprofit organizations. The role of the board of directors is necessary for nonprofits because the board provides the legal framework that’s necessary to ensure that nonprofits are operating for the right purposes and that they’re in continual compliance with laws and regulations at every level.

Nonprofits enjoy specific tax advantages and other privileges in exchange for the valuable services they provide.

The Role of Nonprofits in Society

Nonprofit organizations help to fill the holes in services that federal, state and local governments can’t fill because of financial and budgetary constraints.

Nonprofit organizations often advocate for causes that governments and commercial businesses ignore. In addition to filling the needs of people in their communities, nonprofits fill the role of advocating politically on behalf of the people they serve. From a legal perspective, nonprofits have some limitations on political lobbying. They’re allowed to formulate a stance for or against pending legislation; however, they’re not allowed to make political lobbying one of their major activities. Nonprofit organizations fill a valuable role in the political realm. As the dedicated voice of a cause, politicians readily recognize that advocacy groups and nonprofits are often the experts related to their cause and legislators often reach out to nonprofits for advice when voting for or against legislation.

The role of nonprofit board of directors includes advocacy that has brought about much awareness and positive change for causes such as cancer, AIDS, the environment, mental health, minority group representation and much more.

Legal Reasons for the Role of a Nonprofit Board of Directors

Nonprofit organizations can’t legally operate without a designated board of directors that takes responsibility for ensuring legal compliance and accountability. A nonprofit board of directors is responsible for hiring capable staff, making big decisions and overseeing all operations.

Corporate laws were designed and written for corporations that make a profit. Nonprofit laws were designed to serve organizations that formed with service, rather than profit, as their objective. The Internal Revenue Service (IRS) lists laws for nonprofits under code 501(c)(3).

A nonprofit board of directors is responsible to ensure that their organization continually takes the necessary steps to comply with nonprofit laws in their state.

In recognizing the valuable services that nonprofits offer to their communities, governments provide nonprofits with several advantages that help them achieve their objectives and fulfill their missions. Qualified nonprofit organizations don’t have to pay corporate income taxes on income collected by the corporation. Another huge benefit to nonprofits is that they can accept tax-deductible donations, which offer a benefit to the donor and the nonprofit. Official nonprofit organizations are also eligible for certain government grants. To help ease nonprofits’ budget for mailing expenses, the federal government offers a bulk rate for postal mail for nonprofit organizations. In some areas, nonprofits are eligible for state and county tax benefits as well.

Whereas shareholders oversee the financial matters of for-profit corporations, the board of directors is the main overseer of financial matters for a nonprofit organization. In related matters, nonprofit boards oversee such issues as donations, contracts, fees, grants, insurance, compliance, operations, volunteers and much more.

Nonprofit laws were created with the understanding that nonprofit organizations have the overall goal of fulfilling their mission.

The Role of the Board Directors and the Mission

A nonprofit board’s primary objective is to fulfill the organization’s mission. In doing so, the board represents the public interest and is accountable to the public as well as legal bodies.

Acting as a safety net for the mission, nonprofit board members are usually very dedicated individuals who are the first to volunteer their time, offer sage advice and donate their personal funds toward the good of the organization. Nonprofit board members have a reputation for finding creative and innovative ways to solve the problems facing their organizations. It’s not uncommon for nonprofit boards to work miracles in times of crisis because of their strong dedication to the cause.

Changes in the economy and society often create a need for nonprofits to change their missions. Only the board of directors can change a nonprofit’s mission, and that must occur with a majority vote. This isn’t a step that nonprofit boards take lightly, as the founding directors put much thought into creating a long-term mission.

Accountability and the Role of the Board of Directors

Nonprofit board directors don’t have shareholders to hold them accountable for their actions and decisions; however, they still have much accountability. Nonprofits have many stakeholders, including members, donors, staff and the community they serve, and they are accountable to all of them in various ways. From an ethical standpoint, it’s vital that nonprofit boards do the right thing and do things right. No individual or group should ever profit from the involvement with a nonprofit, which presents a clear conflict of interest.

Board management software programs like those offered by BoardEffect support the role of the board of directors by helping them pursue their duties in the most effective and efficient ways possible. BoardEffect’s board portal system simplifies the processes for setting up well-structured board meetings and board handbooks. The software program was designed as a highly secure platform that ensures enhancing board development, supporting nonprofit compliance, and enhancing good governance practices and principles overall.

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