board of directors

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Under the Not-for-Profit Corporation Law (“NPCL”) it is relatively clear that (i) any committee with corporate authority must be comprised only of trustees, and (ii) committees must be appointed by the board, and not, for example, by the chair (other than special committees).  (The foregoing may not apply if otherwise provided by the certificate of incorporation.)

The NPCL currently distinguishes between (i) the executive committee and other standing committees, on one hand, and (ii) special committees, on the other hand.

Executive and standing committees must be appointed by a majority of the entire board pursuant to Section 712(a) which provides, in part, that “the board, by resolution adopted by a majority of the entire board, may designate from among its members an executive committee and other standing committees, each consisting of three or more directors, and each of which, to the extent provided in the resolution . . . shall have all the authority of the board, except . . . .”  (Emphasis added.)

Note:  This article is a recap of Lesley Rosenthal’s presentation at Proskauer’s 17th Annual Trick or Treat Tax Exempt Seminar, November 29, 2012

Attorneys can reap enormous rewards by serving on nonprofit boards.  Lawyers derive tremendous personal satisfaction in governing an organization that is meaningful to them.  They can do the public good by participating in a charity that feeds the poor, heals the sick, enlightens through culture and education, or preserves the environment.

Nonprofit board service is prestigious, and invaluable for professional networking.  It is also a great remedy for the ennui that sometimes sets in when lawyers work inside big law firms, corporate departments or government agencies, and a cure for the isolation of solo or small-firm practice.  A lawyer who serves as a nonprofit trustee is likely to quickly become a trusted and valued member of the team, whose individual contributions markedly enhance a worthwhile enterprise.

The goal of the revision of the IRS Form 990 is to increase transparency, encourage compliance, and emphasize the importance of ethics within a not-for-profit organization. Given that so much emphasis has now been placed on “good” governance, it is increasingly important for not-for-profit boards to draft, adopt, and implement relevant governance policies – meant to be “living” documents reflecting the organization itself, and changing as an organization grows and develops.
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Over the past few years, the IRS has become increasingly interested in monitoring the governance practices of tax-exempt organizations, particularly public charities. This interest has been shown through public statements of IRS officials, the addition of questions about board makeup and policies to the Form 990, an explanation of why the IRS considers governance important, and the development of training materials on governance for IRS personnel. Not all members of the exempt organizations community agree that the IRS should focus on governance. However, the IRS rationale is that a well-governed organization is a tax-compliant organization.
The IRS has now developed and released a governance issues checklist (the Governance Check Sheet) to be completed in each audit of an exempt organization. The checklist provides a very specific roadmap for exempt organizations to compare their practices and policies with what the IRS wants to see and to make adjustments where necessary.
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