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Five Ways Nonprofit Board Actions Can Be Challenged Under Law [SUBSCRIBERS-ONLY]
It is well-known that Board members are subject to fiduciary duties in their oversight and decision-making role, among other rules that apply to nonprofit organizations. However, the practical reality of how these requirements are scrutinized, applied, and enforced is less understood. This article provides a brief overview of some common ways that Board decisions and actions could be challenged in court.
The Problem with Hybrid Meetings and Events
In-person meetings and events are completely different animals from virtual meetings and events and that difference needs to be recognized and respected. In-person and virtual formats work best when they are exclusive and not combined into a “hybrid” format. While hybrid meeting and event formats may be used occasionally in response to unexpected disruptions, they should not be viewed as the new normal or a long-term option for the future.
How to Make Virtual Board and Committee Meetings More Effective
As the default format for Board and committee meetings has shifted to a virtual platform, nonprofit organizations must be careful to not let these regularly recurring governance meetings become stale and boring. It is time to freshen up these virtual governance meetings with a renewed focus on the smart use of time, attendee satisfaction, and maximizing impact and engagement.
Q&A #166 – Are new nonprofits required to file BOI reports under the Corporate Transparency Act?
While the Corporate Transparency Act (“CTA”) exempts most tax-exempt organizations from the requirement to file beneficial ownership information (“BOI”) reports, there has been some confusion about whether these exemptions apply to new organizations that were just recently formed. A careful reading of the CTA statute and regulations strongly suggests that most newly formed nonprofit organizations are exempt from the BOI reporting requirements, even if their tax-exempt status has not yet been formally approved by the IRS.
The Fundamentals of the Unrelated Business Income Tax (UBIT)
Business or “fee-for-service” revenue can be an important source of unrestricted funds for a well-rounded nonprofit organization. However, many organizations are hesitant to engage in commercial activities due to worries about the unrelated business income tax (“UBIT”). A basic understanding of UBIT fundamentals can alleviate these fears and help organizations to make better, more confident decisions about their business activities.
Q&A #165 – How often should a nonprofit CEO provide updates to the Board of Directors?
Providing monthly Board reports that include financial reporting and progress updates is an established best practice, and this is especially recommended during periods of change and for organizations whose Boards meet quarterly or less frequently. However, CEOs and Executive Directors must be thoughtful about the frequency and their method of communicating with the Board. Providing updates more often than monthly is usually only recommended in unusual situations.
Navigating the Nonprofit Dissolution Process
It is relatively common knowledge that dissolving a nonprofit organization is one of the most difficult decisions a Board of Directors may have to make. However, many people underestimate the careful planning, attention to detail, and commitment that is required to properly shut down and dissolve an organization. This process should start well before the filing of “Articles of Dissolution” and often continues in a post-dissolution “wind-up” period that can last for months or years.
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How to Use Non-Traditional Communication Pathways to Enhance Board Member Engagement [SUBSCRIBERS-ONLY]
Always be on the lookout for proactive and unique communication opportunities to stimulate Board member interest in your nonprofit organization’s mission and activities, foster positive feelings, and generally catch their attention. Because we live in a world of constant change that is further complicated by Board turnover (new Board members entering while other Board members are exiting or rotating through officer positions) it is essential to be creative and flexible with Board member communications by incorporating both traditional and non-traditional tactics.
Q&A #164 – What happens if all Board member terms have expired?
It is unlikely that a nonprofit organization’s entire Board of Directors would be nullified due to a failure to hold elections, since most state nonprofit corporation statutes provide that Board service generally continues past the expiration of the Board member’s term until the Board member’s successor is elected and takes office. In the unlikely event that an organization truly has few or no Board members left to take action, there are often other mechanisms available under state law to reconstitute the Board or petition a court to appoint a legal representative.
Remembering the Long-Term Purpose of Operating Reserves
No one questions whether it is important for nonprofit organizations to build and maintain adequate operating reserves. This is a best practice that is not only widely accepted, but also an expected goal for senior management and governance to pursue and protect. However, there often is a tendency to focus too much on the short-term reasons for building and maintaining operating reserves causing us to lose sight of the often more important long-term purpose for building operative reserves.
Capital Budgets Play an Important Role in Nonprofit Planning and Budgeting
Annual operating budgets for nonprofit organizations will always hold center stage, drawing the attention of senior management, Board, and staff. However, this focus can often lead organizations to neglect longer-term sustainability, capacity, and cash flow planning issues. This is why capital budgets have an important role, serving as a synergistic complement to annual operating budgets that will help current and future planning.
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Integrating Financial Health Assessments into Your Organization’s Planning Process [SUBSCRIBERS-ONLY]
The markers for tracking and assessing a nonprofit organization’s financial health are not a mystery. The key elements of financial health (operating reserves, funding, and operational expenses) are generally easy to identify and understand. You just need a willingness to keep your eyes open and a commitment to pause and make an honest assessment of a financial picture that has most likely been changing.
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Watching Over Pledges Receivable During Periods of Change and Uncertainty [SUBSCRIBERS-ONLY]
Pledges receivable are a vital asset on a nonprofit organization’s balance sheet. However, this asset is highly sensitive to changing economic conditions and donor sentiment. Understanding how past management actions have impacted pledges receivable, and learning to adopt new management tactics, is vital to protecting current pledges receivable and attracting new pledges.
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The Importance of Keeping Records of Board and Officer Terms [SUBSCRIBERS-ONLY]
Corporate recordkeeping is an area where nonprofit organizations often fall short of best practices. One common pitfall is the failure to maintain a list of the current Board member and Officer terms of office with precise start and end dates. This oversight seems small but can have very significant consequences, especially when an internal dispute arises.
Why Gift Acceptance Policies are Important and Must Be Periodically Reviewed and Updated
A gift acceptance policy fills many important roles for a nonprofit organization, including acting as a set of guidelines for fundraising efforts, a tool for risk management, and a protector of the organization’s good governance practices, mission, ethics, reputation, and culture. These characteristics are naturally sensitive to unexpected change and evolving economic conditions, so regularly reviewing and updating your organization’s gift acceptance policy is essential.