A board of directors is a requirement for the operation of a Tennessee nonprofit entity. This elected group serves as the governance of your organization in everything from finances to the nonprofit’s mission.
Electing the right personalities to your board of directors is essential for your organization’s success. This guide will help you select your first board or grow an established board to better serve your nonprofit.
Check out our other guides for a look at how to form a nonprofit organization or how to select a board of directors in other states.
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Tennessee Board of Directors Requirements
The Tennessee Business Corporation Act, Section 48-18-103, lays out the requirements for directors, including the number needed for the board:
- A board of directors must consist of one (1) or more individuals, with the number specified in or fixed in accordance with the charter or bylaws.
- The charter or bylaws may provide that the board of directors has power to fix or change the number of directors, including an increase or decrease in the number of directors. Absent such a provision, only the shareholders may fix or change the number of directors, except as provided in subsection (c).
- The charter or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or the board of directors; provided, that unless the charter or bylaws provide otherwise, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa.
Putting It Into Practice
A Tennessee nonprofit’s board of directors works as a support system for the organization. Its duties include financial management, structural guidance, the hiring of executive directors, and much more. While the board typically isn’t involved in day-to-day operations, it plays an active role in maintaining the well-being of the organization as a whole, its effectiveness, and its financial health.
A 501(c)(3) eligible nonprofit board of directors in Tennessee MUST:
- Have at least three board members that are not related to each other
- Elect the following members: president and secretary
Recommended: Read our full guide on How to Start a Nonprofit in Tennessee.
What Is the Function of the Board of Directors?
The Business Corporation Act, Section 48-18-101 establishes the role of the board of directors in the following manner:
- [E]ach corporation must have a board of directors.
- All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation managed under the direction of, its board of directors, subject to any limitation set forth in the charter.
Putting It Into Practice
Before forming your Tennessee nonprofit’s board of directors, it’s important to understand the role this group plays in the success of your organization. The general responsibilities of a board include:
- Enforcing the Organization’s Mission and Purpose: The foundation of any nonprofit is its mission so a board’s chief task involves upholding that mission as well as the organization’s purpose.
- Hiring a CEO/Executive Director: While your board of directors plays an instrumental role in the success and effectiveness of your nonprofit, it doesn’t participate in the daily operations. That makes it vital for the board to hire a CEO or executive director who will provide effective, day-to-day leadership.
- Incorporating New Members: A board also must source and incorporate new board members capable of effectively upholding the organization’s values.
- Assessing the Allocation of Funds: Careful distribution of assets within an organization ensures all areas receive adequate funding and thus supports the success of each aspect of a nonprofit’s mission.
- Generating Funds and Ensuring Financial Stability: Alongside verifying the appropriate distribution of funds, the board also has a responsibility to generate more assets to create a solid foundation for the nonprofit’s long-term financial stability.
- Supporting and Evaluating the CEO/Executive Director: A nonprofit’s board of directors not only serves as a support system for the CEO/executive director, but also assesses their job performance.
- Ensuring the Organization Follows Legal and Ethical Practices: It comes as no surprise that upholding the ethics of a nonprofit is essential to its success in achieving its mission. In this case, the board’s task involves ensuring the organization consistently follows legal and ethical practices across its operations.
- Generating a Positive Public Image: Building trust within the community not only attracts private investors, but also develops credibility among community members who may use the services your organization offers.
- Acknowledging and Addressing Conflicts of Interest: The Internal Revenue Service (IRS) requires nonprofits to develop a written conflict of interest policy that the organization’s board of directors will enforce. This prevents any board member from using their position in order to serve their personal interests.
Additional Legal Responsibilities
In Tennessee, a nonprofit’s board of directors also must fulfill certain legal responsibilities. The three most common legal responsibilities of a Tennessee nonprofit include duty of care, duty of loyalty, and duty of obedience.
- Duty of Care: At a minimum, board members must attend and participate in meetings. In addition to this, read and review reports, record all actions made during meetings, and review the performance of the CEO or Executive Director.
- Duty of Loyalty: This involves acknowledging and disclosing any conflicts of interest as well as making decisions that benefit the nonprofit as a whole rather than a single board member.
- Duty of Obedience: Board members also must ensure the nonprofit adheres to all applicable laws and regulations while operating under the mission and bylaws that form its foundation
Developing Your First Board of Directors
If you’re still in the process of developing your Tennessee nonprofit entity, choosing the right board members is key to ensuring the effectiveness and stability of your organization. Here are a few tips to help you get started:
- Solidify Roles. Designating functional roles for individual board members — outside of your elected officer’s roles — can improve the board’s overall effectiveness and functionality.
- Develop and Commit to Bylaws. Creating a set of bylaws to uphold the mission of your organization creates a strong foundation to guide board members’ decision-making. In addition, state law may require Tennessee nonprofits to develop bylaws.
- Prioritize Your Mission. Another beneficial strategy when choosing board members is to seek candidates with a passion for your organization’s mission and goals.
- Acknowledge Any Conflicts of Interest. Conflicts of interest will inhibit a board member’s ability to effectively uphold the values and best interests of your organization. That makes it extremely important to assess potential or existing conflicts of interest when evaluating board members for your nonprofit.
Filling Board Vacancies
Vacancies in a Tennessee nonprofit’s board of directors can be filled according to Section 48-18-110 of the Business Corporation Act:
- Unless the charter provides otherwise, if a vacancy occurs on a board of directors, including a vacancy resulting from an increase in the number of directors or a vacancy resulting from a removal with or without cause:
- The shareholders may fill the vacancy;
- The board of directors may fill the vacancy; or
- If the directors remaining in office constitute fewer than a quorum of the board, they may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office.
- If the vacant office was held by a director elected by a voting group of shareholders, only the holders of shares of that voting group are entitled to vote to fill the vacancy if it is filled by the shareholders.
- A vacancy that will occur at a specific later date (by reason of a resignation effective at a later date under § 48-18-107(b) or otherwise) may be filled before the vacancy occurs but the new director may not take office until the vacancy occurs.
Putting It Into Practice
When electing new members to your Tennessee nonprofit’s board of directors, focus on finding individuals dedicated to your organization’s mission. Here are a few tips to consider as you begin your search:
- Look to Your Volunteers. Volunteers who stand out can make excellent additions to a board of directors. These individuals already dedicate their time and energy to your organization and most likely will bring that same dedication and goodwill to your board.
- Explore Candidates Among Loyal Donors. Donors represent another group to consider when electing new board members because they create the financial foundation for your organization. That means they have a track record of dedicating time and money to ensuring the success and sustainability of your nonprofit.
- Expand Your Search. Diversifying your search to include outside groups can prove effective in creating a well-rounded board of directors.
What Are Elected Officers?
Section 48-18-401 further outlines the election of officers to the board:
- A corporation has the officers described in its bylaws or designated by its board of directors in accordance with the bylaws. Unless the charter or bylaws provide otherwise, officers shall be elected or appointed by the board of directors.
- A duly appointed officer may appoint one (1) or more officers or assistant officers if authorized by the bylaws or the board of directors.
- The bylaws or the board of directors shall delegate to one (1) of the officers responsibility for preparing minutes of the directors’ and shareholders’ meetings and for authenticating records of the corporation.
- The same individual may simultaneously hold more than one (1) office in a corporation
Putting It Into Practice
Elected officers are members of the board with assigned roles focused on regulating the day-to-day activities of the organization and maintaining its success. Each position should have a clear role defined in the organization’s bylaws.
The board of directors is required to nominate elected officers in Tennessee. Elected officer roles can not only prove helpful in ensuring the effectiveness of the board of directors, but also provide a foundation of leadership.
The two elected officers required for nonprofits in Tennessee include:
- President: As the leader of the board, the president commonly has authority over key activities like signing contracts and hiring or firing employees. This role differs from the CEO/executive director position, which the board typically hires after assigning the president role.
- Secretary: This individual serves as the organizer of the board meetings, which may include scheduling the meetings, informing board members of the meeting schedule, planning the meeting agendas, and recording meeting minutes.
Note: In Tennessee, the role of president and secretary cannot be held by the same person.
Conclusion
Forming a board of directors is an essential part of creating and operating a nonprofit in Tennessee. Ideally, this group will advocate for your organization’s best interests in everything from finances to public relations. To form or expand a board of directors that will best represent your nonprofit’s needs, search for members who will uphold your organization’s mission and purpose.