The Dual Nature of Nonprofit Governance

By January 12, 2021 Nonprofit
The Dual Nature of Nonprofit Governance

The term ‘governance’ generally refers to the administration or management of an organization. However, nonprofit governance covers more than setting policies and financial controls because a nonprofit has a purpose or mission beyond just keeping the doors open. The need to support both the mission and the organization’s operations can be daunting.

The Mission

Not surprisingly, most for-profit businesses form for the purpose of turning a profit. As such, although a for-profit business usually has a mission statement, a nonprofit’s mission is quite different. To gain tax-exempt status as a nonprofit, an organization can look to IRS 501(c)(3).

The Internal Revenue Service (IRS) recognizes many different types of nonprofits, the most common designation being 501(c)(3). Organizations formed under this section must be “organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes…”

However, the mission can’t go on when nonprofit governance issues jeopardize the organization’s very survival.

The Role of the Board

Nonprofit organizations are typically run by a board of directors or board of trustees. The board’s responsibilities include:

  • Establishing goals,
  • Approving the actions the organization will take to meet those goals,
  • Preparing annual budgets,
  • Monitoring financial transactions, and
  • Putting policies and procedures in place.

While attending to financial matters and writing policies, the board must also keep the organization’s mission in mind at all times.

For example, a charitable organization formed for the purpose of protecting animals will likely spend their time and money on animal-related issues. However, the board of directors may decide instead to support political campaigns for candidates who are strong on other issues favored by individual board members. The board’s governance of this nonprofit could jeopardize both the organization’s ability to carry out its mission and its tax-exempt status.

Nonprofit Governance Is Complicated

The duality of governance and mission is a complex issue that requires in-depth legal advice. A nonprofit organization’s mission cannot go on without good governance, but the organization would not even exist as a nonprofit without the mission.

Provident Law’s church and nonprofit attorneys are here to help answer questions and with establishing and crafting policies governing employment issues. We recognize how essential good employment practices are to a church’s ongoing mission, and we stand ready to counsel and serve the churches of Arizona. Contact us to learn more.