A board of directors is a requirement for the operation of a California 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.
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California Board of Directors Requirements
California Corporations Code Section 5210 defines a nonprofit board of directors as such:
Each corporation shall have a board of directors. Subject to the provisions of this part and any limitations in the articles or bylaws relating to action required to be approved by the members (Section 5034), or by a majority of all members (Section 5033), the activities and affairs of a corporation shall be conducted and all corporate powers shall be exercised by or under the direction of the board. The board may delegate the management of the activities of the corporation to any person or persons, management company, or committee however composed, provided that the activities and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the board.
A California 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 California MUST:
- Have three or more members unless there are only one or two shareholders of record
- Only pay a maximum of half of the board of directors, if any
- Elect the following members: president, secretary and treasurer
What Is the Function of the Board of Directors?
Before forming your California 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 California, a nonprofit’s board of directors also must fulfill certain legal responsibilities. The three most common legal responsibilities of a California nonprofit include duty of care, duty of loyalty, and duty of obedience.
- Duty of Care: This involves making appropriate use of the assets held by the organization. Specifically, board members must ensure the use of such funds promotes the good of the organization and those who benefit from its services.
- 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 California 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 California 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 California nonprofit’s board of directors can be filled according to Section 5221 of the Nonprofit Corporation Law:
(a) The board may declare vacant the office of a director who has been declared of unsound mind by a final order of court, or convicted of a felony, or been found by a final order or judgment of any court to have breached any duty under Article 3 (commencing with Section 5230), or, if at the time a director is elected, the bylaws provide that a director may be removed for missing a specified number of board meetings, fails to attend the specified number of meetings.
(b) As provided in paragraph (3) of subdivision (c) of Section 5151, the articles or bylaws may prescribe the qualifications of directors. The board, by a majority vote of the directors who meet all of the required qualifications to be a director, may declare vacant the office of any director who fails or ceases to meet any required qualification that was in effect at the beginning of that director’s current term of office.
When electing new members to your California 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 5213 further outlines the election of officers to the board:
(a) A corporation shall have (1) a chair of the board, who may be given the title chair, chairperson, chairman, chairwoman, chair of the board, chairperson of the board, chairman of the board, or chairwoman of the board, or a president or both, (2) a secretary, (3) a treasurer or a chief financial officer or both, and (4) any other officers with any titles and duties as shall be stated in the bylaws or determined by the board and as may be necessary to enable it to sign instruments. The president, or if there is no president the chair of the board, is the general manager and chief executive officer of the corporation, unless otherwise provided in the articles or bylaws. Unless otherwise specified in the articles or the bylaws, if there is no chief financial officer, the treasurer is the chief financial officer of the corporation. Any number of offices may be held by the same person unless the articles or bylaws provide otherwise, except that no person serving as the secretary, the treasurer, or the chief financial officer may serve concurrently as the president or chair of the board.
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 California. 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 three elected officers for nonprofits in California include:
- Treasurer: The treasurer is responsible for evaluating the financial health of the organization by keeping track of receipts and spending.
- 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.
Forming a board of directors is an essential part of creating and operating a nonprofit in California. 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.