A nonprofit organization, like a traditional for profit organization, must have a board of directors. But that board has a different role in a nonprofit organization, than it would in a traditional company, because of the differing missions and goals between the two types of organizations.
Our Chicago corporate lawyer at Ellis Legal explains more about the board in a nonprofit organization.
Differing Roles
As a general rule, a Board of Directors role in a traditional company, is to protect the interest of the shareholders, many of whom have little or no role in the day to day operation of the company, nor any say in who the company officers will be.
By "protect the interest of shareholders," it means that the Board's goal is to maximize profits for the shareholders by making the company as profitable as possible, hence increasing shareholder dividends.
However, that runs against the idea and mission of nonprofit organizations because nonprofits have no shareholders, and while they can and do make a profit, that profit is not given to any shareholder, board member, or officer of the nonprofit organization.
Roles of the Board
If the board doesn't try to maximize profit for any shareholders in a nonprofit organization, what exactly does it do?
In a nonprofit organization, the Board's job is to both protect outsiders with a stake or interest in the business (such as donors or members of the organization) and also to protect the nonprofit organization itself.
Some examples of things that a board of a nonprofit organization may do, oversee, or regulate include:
Making sure that the nonprofit company is using money the way the money should be used—that can be in accordance with the terms of a grant, or else, in furtherance of the stated mission of the nonprofit.
Making sure that company salaries and expenses are within the company budget and that expenditures don't jeopardize the continued existence of the nonprofit
Managing grants and fundraisers and overseeing company officers to ensure that company money is being spent or invested wisely and prudently in a way to maximize return on the money
Taking measures to ensure that the company maintains a good image with the general public, which can include public outreach, but also ensuring the company doesn't violate any state or federal laws
Investigate suspicions of wrongdoing, mismanagement of money, or other actions that could jeopardize the future of the organization.
The Role in Raising Money
A private business sells a product or service, which reaps financial rewards for the company.
However, that is not always the case for a nonprofit, which may actually engage in activities that potentially lose money. That means that the Board may have to be more engaged in fundraising activities than the board of a traditional company, which can rely on sales to make money.
Fiduciary Duties
Although its duties may differ from a traditional company, the board's fiduciary duties in a nonprofit organization, are the same as in any company. Board members must avoid having conflicts of interest or from self dealing or diverting opportunities away from the organization.
Speak with aChicago corporate law attorney at Ellis Legal at (312) 967-7629 today for questions about your profit or nonprofit organization.