Determining the role and duties of your board of trustees is one of the most important steps when starting up your nonprofit organization. Although your board's responsibilities generally depend on your organization's specific needs, you should also check the rules and regulations applicable to your organization, as there are specific state-related requirements you must also take into account when determining how your board of trustees functions.
Board of Trustees Overview
Even though the nonprofit industry tends to use the terms "board of trustees" and "board of directors" interchangeably, from a legal standpoint, a trustee is very different from a director. Trustees are held to a strict fiduciary standard with regard to the assets held in their care, while directors are tasked with the management of the company and the duties related to such management.
As with the board of directors in a for-profit organization, the board of trustees' role is to oversee the overall management of the nonprofit organization. While responsibility for day-to-day operations is handled by upper management, staff, and volunteers, the board tackles problems and decisions related to bigger issues, such as the direction and mission of the nonprofit entity, staffing concerns, and general governance-related matters.
Board of Trustees Responsibilities
Just as a board of directors has a responsibility to the corporation it serves, a board of trustees has legal obligations to its nonprofit organization. These duties are fiduciary, which basically means the board of trustees must always act in the nonprofit's best interests.
One of the biggest issues that can arise in the context of this higher fiduciary standard is that of conflict of interest. When making decisions, it's essential that the board of trustees ensures that no individual board member holds an interest that is in direct conflict with the interests of the organization.
For example, if the board is deciding whether a contract should be awarded to a particular vendor, none of the trustees should hold an interest in that vendor, which would be deemed an unacceptable conflict of interest.
In addition to these legal duties, a board of trustees also has other management and operational responsibilities, which are generally set out in the articles of organization and bylaws. Individual states may also have specific requirements governing the responsibilities of a nonprofit organization's board of trustees.
Board of Trustees Structure
As with board trustees' responsibilities, requirements for board structure should be set out in the nonprofit organization's articles of organization or bylaws. There may also be state-specific requirements that have an effect on how a board of trustees should be structured. Any board structure requirements generally concern issues such as:
- Board size. Unless there are specific state requirements as to the minimum number of trustees on a board of trustees, there is no standard requirement as to the size of your board. Nonprofit organizations usually choose a board size that is most efficient for the size of the organization.
- Election or appointment. The organization's articles or bylaws should set out whether members are elected or appointed to the board of trustees, and how these elections or appointments are carried out.
- Board positions. As with board size, some states may require certain positions on a board of trustees, such as board chair, secretary, or treasurer. In addition to any such state requirements, the articles of organization or the bylaws can also outline other required board positions.
- Duration of term. The length of time a trustee serves on the board should also be addressed in the nonprofit's organizing documents or bylaws. Note that state laws may set maximums on the length of time a board member can serve.
Board of Trustees Salary
In general, individuals appointed or elected to a board of trustees do not receive financial compensation. However, this doesn't mean that a nonprofit organization can't pay its board members. For example, the organization might choose to financially compensate a board member who provides professional services, such as legal advice or tax preparation. Also, some organizations might pay expenses board members incur as a result of official board activities, such as travel expenses related to their attendance at board meetings.
Note that if you do decide to pay the members of your board of trustees and the annual compensation is more than $600, your nonprofit organization must file a Miscellaneous Income (Form 1099-MISC) for each board member.
Much like a corporate board of directors, the board of trustees for a nonprofit organization is tasked with big-issue matters such as the overall direction of the organization, strategic planning matters, and general governance. Ideally, in addition to adhering to any state requirements, you should define your board of trustees' role and responsibilities in your organization's originating documents or in its bylaws, which are usually created during the formation process of your nonprofit.