Responsibilities of a Nonprofit

In a previous newsletter, What is a Nonprofit?, I described three different types of nonprofits:

• Nonprofit, most commonly a 501(c)(3)
• Not-for-profit
• Foundations

Most of what I am going to say is directed to the very large category of 501(c)(3) organizations.

According to ProPublica, are 1.9 million active nonprofits and 18 million tax filings. The nonprofit sector has $3.6 trillion in total revenue. Click here for current statistics and a breakdown by states and territories.

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Structure

The specific structure of a 501(c)(3) nonprofit can vary depending on its size, mission, and resources. The structure of a 501(c)(3) nonprofit organization typically involves several key components:

Governing Board: This volunteer board is responsible for overseeing the organization’s mission, finances, and programs. They set the strategic direction, approve budgets, and hire the executive director. The composition of the board can vary, but it often includes representatives from the community, donors, and experts in the organization’s field.

Executive Board: In many cases, certain members of the Governing Board will be elected or appointed to be the President, Treasurer, or Secretary.

Executive Director: The executive director leads the day-to-day operations of the organization, reporting to the board. They are responsible for hiring and managing staff, developing and implementing programs, fundraising, and ensuring compliance with all legal and financial regulations.

Staff: The staff carries out the organization’s programs and services. Depending on the size and complexity of the organization, there may be program directors, fundraisers, administrative staff, and other specialists.

Volunteers: Volunteers donate their time and skills to support the organization’s mission in various ways, such as serving on the board, providing direct services to clients, or helping with fundraising events.

Members: Some 501(c)(3) organizations have members who support the organization financially or through other means. Members may have voting rights, receive discounts on programs and services, or be invited to special events.

Committees: Committees are groups of volunteers or staff who focus on specific areas of the organization’s work, such as finance, programs, or fundraising. They provide advice and support to the board and executive director.

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Responsibilities

It’s important to remember that 501(c)(3) organizations must adhere to strict regulations to maintain their tax-exempt status. These regulations cover areas such as governance, financial management, and prohibited activities.

The governance of a 501(c)(3) nonprofit holds immense importance, acting as the foundation for its mission fulfillment, financial health, and public trust.

Core Responsibilities:

• Strategic Planning: Defining the organization’s mission, vision, and long-term goals.
• Financial Oversight: Approving budgets, monitoring expenses, and ensuring financial accountability.
• Program Development and Evaluation: Overseeing program design, implementation, and assessment of impact.
• Risk Management: Identifying and mitigating potential risks to the organization and its beneficiaries.
• Fundraising: Securing resources to support the organization’s activities.
• Compliance: Adhering to all relevant legal and regulatory requirements, including those outlined by the IRS for maintaining 501(c)(3) status.

Best Practices:

• Transparency: Open communication with stakeholders, including clear financial reporting and program impact data.
• Accountability: Establishing clear roles and responsibilities, with performance metrics for measuring effectiveness.
• Conflict of Interest Policy: Implementing safeguards to prevent personal gain from organizational resources or activities.
• Diversity and Inclusion: Encouraging a diverse board and staff composition that reflects the community served.
• Regular Assessment: Periodically evaluating governance practices and making adjustments as needed.

Additional Considerations:

• Size and Complexity: Governance structures may vary depending on the organization’s size and complexity. Smaller organizations might have a less formal structure, while larger ones might have additional committees or specialized roles.
• State-Specific Regulations: Beyond federal requirements, some states have additional governance regulations for nonprofits.

By adhering to strong governance practices, 501(c)(3) organizations can operate effectively, transparently, and responsibly, building trust with stakeholders and achieving their missions in a sustainable manner.

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State Charter and Bylaws

While the specific wording of a nonprofit’s State Charter will vary depending on the individual organization and applicable state laws, here’s an overview of typical wording found in certain sections of a nonprofit’s charter or bylaws:

Charter (Articles of Incorporation):

• Name: “The name of the corporation shall be [NAME OF ORGANIZATION].”
• Purpose: “The purpose of this corporation is to [DESCRIBE CHARITABLE PURPOSE].”
• Powers: “The corporation shall have all powers granted by the [STATE NAME] Nonprofit Corporation Act and necessary to carry out its purposes.”
• Registered Agent: “The registered agent of the corporation is [NAME AND ADDRESS].”
• Dissolution: “Upon dissolution of the corporation, any remaining assets shall be distributed to one or more organizations that qualify as exempt organizations under Section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, as designated by the Board of Directors.”

Bylaws:

• Meetings: “Regular meetings of the Board of Directors shall be held at least [NUMBER] times per year…”
• Officers: “The officers of the corporation shall be a President, Vice President, Secretary, and Treasurer….”
• Board Membership: “The Board of Directors shall consist of [NUMBER] members elected by the members/voting members of the corporation at the annual meeting….”
• Committees: “The Board of Directors may establish such committees as it deems necessary…”
• Amendments: “These Bylaws may be amended by a [PERCENTAGE] vote of the Board of Directors…”
• Conflict of Interest: “No Board member, officer, or employee of the corporation shall engage in any transaction that conflicts with the interests of the corporation…”

Additional Notes:

• The wording should be clear, concise, and easy to understand.
• Avoid using legal jargon whenever possible.
• Use gender-neutral language.
• Consult with an attorney to ensure compliance with state and federal laws.

It’s important to remember that these are just examples, and the actual wording in your organization’s documents may differ. It’s crucial to tailor the content to your specific organization and seek professional guidance when necessary.

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Summary

In summary, nonprofits are either owned by nobody or owned by everybody. As a result, they are beholden to the general public, not to corporate shareholders. So, to be transparent, a nonprofit’s IRS tax return is public information. Nonprofits are companies chartered by State Governments whereas the Federal Government’s Internal Revene Service grants nonprofit status. If a nonprofit goes out of business, no individuals (not even the Founder) can benefit. The remaining assets must be distributed to other tax-exempt organizations.

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