Modern nonprofits have come a long way since the grassroots days of the late 1960s to 1980s. Early on, organizations paid little attention to the business aspect of their agencies, and focused on the mission or services they were providing. As organizations grew, it became clear that in order to be successful and ongoing, professional business practices needed to be applied to nonprofit agencies.
Nonprofit Organizations Must File IRS Form 990
While nonprofit organizations are considered “tax-exempt,” the Exempt Organizations Division of the Internal Revenue Service (IRS) monitors the financial reporting of nonprofits. This is accomplished through the filing of IRS Form 990, as a result of a tax code established in the United States in 1941. All nonprofit agencies are required to file Form 990 at the end of each fiscal year.
Nonprofit Organizations Must Have A Volunteer Board Of Directors
Nonprofit agencies are required to have a volunteer board of directors. A volunteer board means that no member of the board is paid by the agency. A mistake many nonprofits have made is appointing the executive director of an agency as the board president. This is a conflict of interest, and is strictly prohibited. The board of directors serves as the final governing body of a nonprofit organization, and acts as a monitor for the executive director position.
Nonprofit Organizations Must Have A Conflict Of Interest Clause
In regard to the board of directors, each agency must also have a conflict of interest clause drafted in their official policies and procedures. The conflict of interest clause must state that no member of the board of directors will benefit financially by sitting on the organization’s board. For instance, an individual sitting on your board owns a roofing company. That individual’s company cannot bid to replace the roof of your organization’s building, as they would then financially benefit from sitting on the board of directors.
Mandatory State Filing And Changes To Your Organization
In most states, nonprofit agencies must also apply for a license to solicit charitable donations with the attorney general's office each year, or every three years, depending on the state. There is usually not a charge to apply for this license.
Each nonprofit will also have to file articles of incorporation in their state when applying for their 501c3 nonprofit status with the federal government. If there are changes over time of the original incorporators of the business, or if the mission or scope of the agency changes, these changes must be made as an amendment to the articles of incorporation. There is usually a nominal filing fee to do so.
The IRS will also like to know if the mission of your organization changes significantly over time. Visit the IRS website for contact information to make changes to your mission statement.
Nonprofit Organizations And The Department Of Labor
All U.S. Department of Labor laws apply to nonprofit organizations. Another mistake many nonprofits have made is a belief that because they are an exempt organization, they do not have to follow the same rules as a for-profit business in regard to minimum wage and mandatory benefits such as worker’s compensation. Avoid litigation and fines by applying all Department of Labor laws for your paid staff.
Get Information Pertinent To Your State
These are a few of the most important rules and regulations for nonprofit organizations. For more information visit the IRS website, as well as the attorney general's office for your state.