How to Develop a Board of Directors for a Nonprofit in North Carolina
A board of directors is a requirement for the operation of a North Carolina 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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North Carolina Board of Directors Requirements
The North Carolina Nonprofit Corporation Act, Section 55A-1-40, defines a nonprofit board of directors as:
(2) "Board" or "board of directors" means the group of natural persons vested by the corporation with the management of its affairs whether or not the group is designated as directors in the articles of incorporation or bylaws.
The number of required directors on the board is laid out in Section 55A-8-03:
(a) A board of directors shall consist of one or more natural persons, with the number specified in or fixed in accordance with the articles of incorporation or bylaws.
(b) The number of directors may be increased or decreased from time to time by amendment to or in the manner prescribed in the articles of incorporation or bylaws.
(c) The articles of incorporation 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 members entitled to vote for directors or (unless the articles of incorporation or an agreement valid under G.S. 55A-7-30 shall otherwise provide) the board of directors. If the corporation has members entitled to vote for directors, only such members 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 North Carolina 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 North Carolina MUST:
- Have at least three board members that are not related to each other
What Is the Function of the Board of Directors?
The Nonprofit Corporation Act, Section 55A-8-01 establishes the role of the board of directors in the following manner:
(a) Except as provided in subsection (c) of this section, each corporation shall have a board of directors.
(b) All corporate powers shall be exercised by or under the authority of, and the affairs of the corporation managed under the direction of, its board of directors, except as otherwise provided in the articles of incorporation.
(c) A corporation may dispense with or limit the authority of a board of directors by describing in its articles of incorporation who will perform some or all of the duties of a board of directors; but no such limitation upon the authority which the board of directors would otherwise have shall be effective against other persons without actual knowledge of such limitation.
(d) To the extent the articles of incorporation vests authority of the board of directors in an individual or group other than the board of directors, the individual or group in the exercise of such authority shall be deemed to be acting as the board of directors for all purposes of this Chapter.
Putting It Into Practice
Before forming your North Carolina 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 North Carolina, a nonprofit’s board of directors also must fulfill certain legal responsibilities. The three most common legal responsibilities of a North Carolina 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 North Carolina 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 North Carolina 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 North Carolina nonprofit’s board of directors can be filled according to Section 55A-8-11 of the Nonprofit Corporation Act:
(a) Unless the articles of incorporation or bylaws provide otherwise, and except as provided in subsections (b) and (c) of this section, if a vacancy occurs on a board of directors, including, without limitation, a vacancy resulting from an increase in the number of directors or from the failure by the members to elect the full authorized number of directors, the vacancy may be filled:
(1) By the members entitled to vote for directors, if any, or if the vacant office was held by a director elected by a class, chapter or other organizational unit, or by region or other geographic grouping, by the members of that class, chapter, unit, or grouping;
(2) By the board of directors; or
(3) If the directors remaining in the office constitute fewer than a quorum of the board, by the affirmative vote of a majority of all the directors, or by the sole director, remaining in office.
(b) Unless the articles of incorporation or bylaws provide otherwise, if a vacant office was held by an appointed director, only the person who appointed the director may fill the vacancy.
(c) If a vacant office was held by a designated director, the vacancy shall be filled only as provided in the articles of incorporation or bylaws.
(d) A vacancy that will occur at a specific later date (by reason of a resignation effective at a later date under G.S. 55A-8-07(b) or otherwise) may be filled before the vacancy occurs but the new director shall not take office until the vacancy occurs.
Putting It Into Practice
When electing new members to your North Carolina 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 55A-8-40 further outlines the election of officers to the board:
(a) A corporation has the officers described in its bylaws or appointed by the board of directors in accordance with the bylaws.
(b) A duly appointed officer may appoint one or more officers or assistant officers if authorized by the bylaws or the board of directors.
(c) The secretary or any assistant secretary or any one or more other officers designated by the bylaws or the board of directors shall have the responsibility and authority to maintain and authenticate the records of the corporation.
(d) The same individual may simultaneously hold more than one office in a corporation, but no individual may act in more than one capacity where action of two or more officers is required.
(e) Whenever a specific office is referred to in this Chapter, it shall be deemed to include any person who, individually or collectively with one or more other persons, holds or occupies such office.
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 not required to nominate elected officers in North Carolina. 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 four elected officers for nonprofits in North Carolina 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.
- Vice President: The vice president serves as support for the president. In many cases, the vice president moves into the role of president after the current president completes their term.
- Treasurer: The treasurer is responsible for evaluating the financial health of the organization by keeping track of receipts and spending.
- 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 North Carolina. 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.