The board of directors of a for-profit corporation is quite similar to a non-profit board, but there are some important distinctions. In general, the fact that both types of businesses are organized as corporations makes them fundamentally similar. Members of each have the same fiduciary duties and must attend to similar operational and governance tasks. Corporate boards are also responsible for complying with state and federal regulations for corporations, such as employment laws and proper IRS filings.
The differences between for-profit and non-profit boards stem primarily from the obvious differences between for-profit and non-profit companies: their purpose for existing. For-profit corporations exist to make a profit. They can alter or modify the direction of the company at will, because anything they do to improve profitability serves the stated purpose of making money. However, nonprofit organizations must have a public service purpose, such as providing education, addressing the ill effects of poverty, or serving some other charitable purpose. Nonprofit organizations are accountable to the public, work for the public, and must use all income above stated expenses to fulfill their stated purpose. To that end, there are a few variations on how a nonprofit board is developed and managed that keep the company in line with its purpose.
Board of Directors Compensation
First, nonprofit board members are generally not paid for their services, while for-profit board members are. The voluntary capacity of a nonprofit board member does not reduce their liability or increase their liability protections. In fact, because nonprofit board members essentially work for the public, their actions may be scrutinized more carefully than the actions of the for-profit board. Those who volunteer to serve on nonprofit boards tend to have a personal connection to the organization’s efforts. They are willing to put in hours to help solve the problem at hand, with no reward except the satisfaction of charitable work. For-profit board members are also shareholders, or business owners, who are motivated to maximize profit for their own benefit.
The board of directors is practical
Typically, for-profit board members set the standards for the company (profitability targets, etc.) and leave the actual sales efforts to the designated CEO and his staff. Nonprofit board members are expected to be much more involved in developing the organization’s funding strategies. They should solicit funds from their own contacts, as well as participate in major fundraising events. For many nonprofit organizations, the efforts of board members provide the majority of the capital with which the organization operates.
Nonprofit Executive Director
In for-profit corporations, the chief executive officer typically sits on the board of directors. Because all board positions are paid, there is less conflict regarding the board managing the CEO’s salary and job performance. In addition, the CEO and the members of the board directly benefit from the profitability of the corporation. In a nonprofit corporation, the CEO is usually the highest-ranking member of the organization who is actually paid. They are also hired and managed by the board, but since the purpose of a nonprofit organization does not directly benefit the CEO or the board, it makes sense that the CEO No be a board member. That is, unpaid board members can make the best decisions for the organization without the inclusion of the only participant with a vested interest, such as the CEO and her salary.
Maintain non-profit status
The other obvious difference between nonprofit and for-profit organizations is the tax exemption and charitable status available to nonprofit organizations. The board of a nonprofit organization is responsible for establishing and maintaining each status. An important issue is monitoring members’ self-interest in the organization’s activities. That is, a board member may contract to work for (and be paid by) the organization, but only within reason and only if the organization can demonstrate that it did its due diligence before accepting the contract. For example, if a board member is hired to design and manage the organization’s website, there must be evidence that the board member was selected after careful consideration and that hiring him or her is the best option for the organization. non profit.
Because of the fundamental differences between the purposes of for-profit and non-profit corporations, there are some distinctive differences in the way these boards are managed. In general, however, board members retain very similar responsibilities and tasks… after all, business is business no matter where the profits go!
