How to Develop a Board of Directors for a Nonprofit in North Dakota
A board of directors is a requirement for the operation of a North Dakota 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.
Recommended: Northwest can help form your nonprofit for you for $29 + state fees.
North Dakota Board of Directors Requirements
The North Dakota Century Code, Section 10-33-28, lays out the requirements for directors that serve on a nonprofit board:
With respect to the number of directors:
- The board must consist of three or more directors, with the number specified in or fixed in accordance with the articles or bylaws. However, if the corporation has either one or two members with voting rights, the number of directors may be less than three but not less than the number of members with voting rights.
- The number of directors may be increased or, subject to sections 10-33-36 and 10-33-37, decreased at any time by amendment to or in the manner provided in the articles or bylaws.
- Notwithstanding section 10-33-38, if the power to elect or appoint directors is vested in the board of directors and if the number of directors falls below three, or such greater minimum number set forth in the articles or bylaws, then a majority of the directors in office may appoint or elect the number of additional directors necessary to increase the board to three directors or such greater minimum set forth in the articles or bylaws.
Putting It Into Practice
A North Dakota 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 Dakota MUST:
- Have at least three board members that are not related to each other
- Elect the following members: chair or president and secretary
- Have no more than 49% of the board be financially invested individuals
- Allow no board terms to exceed 10 years
What Is the Function of the Board of Directors?
The Century Code, Section 10-33-27 establishes the role of the board of directors in the following manner and further defines director requirements:
- The activities and affairs of a corporation must be managed by or under the direction of a board.
- All directors are entitled to vote and have equal rights and preferences except as otherwise provided in the articles or bylaws.
- The members of the first board may be named in the articles, designated or appointed pursuant to the articles, or elected by the incorporators under section 10-33-25.
- No more than forty-nine percent of the individuals serving on the board of any corporation may be financially interested individuals.
- For the purposes of this section, "financially interested individuals" means:
- Individuals who have received or are entitled to receive compensation, directly or indirectly, from the corporation for services rendered to it within the previous twelve months, whether as full-time or part-time employees, independent contractors, consultants, or otherwise, excluding any reasonable payments made to directors for serving as directors;
- Any parent, child, child of a spouse, brother, or sister of that individual; or
- The spouse of any individual described in subdivision a or b.
- Failure to comply with the provisions of this section does not affect the validity or enforceability of any transaction entered into by the corporation.
Putting It Into Practice
Before forming your North Dakota 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 Dakota, a nonprofit’s board of directors also must fulfill certain legal responsibilities. The three most common legal responsibilities of a North Dakota 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 Dakota 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 Dakota 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 Dakota nonprofit’s board of directors can be filled according to Section 10-33-38 of the Century Code:
- Unless the articles or bylaws provide otherwise, and except as provided in this section, if a vacancy occurs on the board, including a vacancy resulting from an increase in the number of directors:
- The members with voting rights, if any, may fill the vacancy; or
- The remaining members of the board, though less than a quorum, may fill the vacancy.
- If a vacant office was held by a director elected by a class, chapter, or other organizational unit or by region or other geographic grouping, only members with voting rights of the class, chapter, unit, or grouping are entitled to vote to fill the vacancy.
- If a vacant office was held by an appointed director, only the person who appointed the director may fill the vacancy.
- A vacancy that will occur at a specific later date 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 North Dakota 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 10-33-49 further outlines the election of officers to the board:
- The officers of a corporation must be individuals who are eighteen years of age or more exercising the functions of the offices and:
- Must include a president and a secretary, however designated; and
- May also include a treasurer, one or more vice presidents, and any other officers, however designated, as may be prescribed by the bylaws.
- Unless the articles or the bylaws provide that the members with voting rights may elect the officers:
- Each officer must be elected by the board at the time and in the manner as may be provided in the bylaws; or
- To the extent authorized in the articles, the bylaws, or a resolution approved by the affirmative vote of a majority of the directors present, the president may appoint one or more officers, other than the treasurer.
- Unless otherwise provided, president shall mean chief executive officer and treasurer shall mean chief financial officer.
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 North Dakota. 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 North Dakota include:
- Chair or 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 North Dakota. 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.