It is important for the president of a nonprofit organization to be aware of the responsibilities of that office.
All corporations, both nonprofit and for-profit, are formed under the laws of the state in which they are incorporated. This involves preparing and filing a document, most often called Articles of Incorporation, with the appropriate state agency. The Articles of Incorporation provide basic information about the corporation, such as its name, business address, identity of the initial board members, and other provisions required by state or federal law.
Although corporations are creations of state governments, there are also certain requirements imposed by federal law. These mostly relate to federal taxation of the corporation, but federal anti-fraud and securities laws may also come into play.
All corporations have the same basic organization. A board of directors has ultimate responsibility for the operation of the corporation. The board selects corporate officers to handle the day-to-day operations. These officers include a president (sometimes called the chief executive officer or CEO), secretary, and treasurer (sometimes called the chief financial officer or CFO); and may include one or more vice-presidents. The number and title of corporate officers varies from state-to-state, with some states requiring at least one vice-president. For smaller corporations, it is not uncommon for a board member to also hold a corporate office, and for one person to hold the offices of both secretary and treasurer.
How is a Nonprofit Corporation Different?
The two major differences between a for-profit and a nonprofit entity are that (1) the nonprofit business must provide additional information to the federal and state governments to secure and maintain a tax exemption, and (2) the net earnings may not be distributed to any members, directors, or officers. However, an officer may be paid reasonable compensation for his or her services.
There is also a structural difference. In a for-profit corporation, there are shareholders who are the owners of the business, and who periodically elect the board of directors and are entitled to share in the earnings of the business. A nonprofit corporation may operate with just directors and officers. A nonprofit corporation may also have members, who are similar to shareholders in that they can elect the directors, but are not allowed to share in any earnings.
Legal Duties of a Nonprofit President
The duties of a nonprofit president come from several sources, as well as common sense and tradition. The legal side of a president’s duties come from four sources:
State Law. All states have laws relating to the fiduciary duty of an officer of a nonprofit organization. This is the duty to act in the best interests of the corporation, any members, and the intended beneficiaries of the corporation’s purpose. It prohibits self-dealing and conflicts of interest. The president also has the ultimate responsibility to assure that all state reporting requirements are met.
Federal Law. The Internal Revenue Service (IRS) and the Securities Exchange Commission (SEC) have regulations relating to corporations, including nonprofits. These rules involve such things as what is required to obtain and maintain the tax exempt status of a nonprofit (purpose and nature of the organization, filing requirements, etc.), what acts are prohibited for a nonprofit (distribution of earnings for private benefit, political lobbying, etc.), the type of financial records and other organization documents that must be kept, the oversight of the officers by the board of directors, and officer compensation. There is also federal legislation (the Sarbanes-Oxley Act of 2002), which established anti-fraud requirements for boards of directors and officers of corporations, and includes a provision that corporate officers are personally responsible to assure the completeness and accuracy of financial records. The president should be familiar with these regulations.
Articles of Incorporation. Typically, the articles of incorporation do not go into any detail about the duties of an officer. However, especially with a nonprofit, the articles of incorporation will include some provisions that are required by law to maintain the nonprofit status. The president should be familiar with, and understand, all provisions of the articles of incorporation.
By-Laws. The nonprofit bylaws provide more detailed operational guidelines than the articles of incorporation. The bylaws typically include provisions relating to officers, including a general description of their duties (or a general statement to the effect that the officers have the duties and powers that traditionally pertain to the office). Bylaws will also contain various provisions regarding maintaining the nonprofit status, such as prohibiting the distribution of earnings and political lobbying, and what must be done with assets in the event the corporation is dissolved. The president should be familiar with, and understand, all of the bylaws.
Traditional Duties of a Nonprofit President
Although he is accountable to the board of directors, when it comes to the day-to-day running of the nonprofit company, the president bears the ultimate responsibility. The president is responsible to make sure that the other nonprofit officers (the nonprofit secretary, the nonprofit treasurer, and any vice-presidents) are fulfilling their duties. Other common duties of a nonprofit president include:
Signature authority. The president has the authority to sign legal documents on behalf of the corporation. This includes the ability to sign corporate checks, although other officers may also have this power.
Strategic planning. The president may participate in, or lead, short and long term planning for the organization. This includes developing programs to carry out the goals of the organization, and overseeing the implementation of these programs.
In most nonprofit organizations, the president oversees fund raising operations, and is also the organization’s chief fundraiser. This involves acting as the primary spokesperson for the organization, recruiting donors, and attending fundraising functions.
Act as liaison to the board of directors. The president is the primary liaison between the board and the organization’s staff members. This involves informing the staff of board decisions and plans, and keeping the board informed of the status of the organization’s finances, programs, etc. The president will also submit plans and budgets for board approval, and often presides over board meetings.
The president of a nonprofit corporation has overall responsibility for all aspects of the corporation’s business. Being familiar with the various state and federal laws, as well as the corporation’s articles of incorporation and bylaws, is essential to carry out the duties of the office.
If you’re ready to step into the role of a nonprofit president and start a nonprofit corporation, LegalZoom can help. Answer a few questions about your nonprofit organization, and we will help you complete the paperwork you need to start the organization. Unsure? Need more help? We have your back – our legal help plans put you in touch with independent attorneys that can help you make important legal decisions.