Family Involvement in Nonprofit Organizations
A family can run a nonprofit organization. The IRS encourages specific governance practices for 501(c)(3) board composition. Having mostly family members on the board is not illegal but not ideal. In the bylaws of many nonprofits, a conflict-of-interest section addresses policy regarding family members serving together. If there is no such clause, one should be added that takes into account the likely makeup and goals of the board. For instance, a clause could prohibit a quorum consisting primarily of family members.
Additionally, the family should ensure the nonprofit has a clear purpose and mission aligned with the family’s goals. They should also map out a sustainable revenue stream to support long-term success.
With passion and proper setup, a family-run nonprofit can make a real difference.
Participation of Family Members on Non-Profit Boards
In non-profits, no legal regulation explicitly prohibits family members from participating on the same board of directors. However, history suggests that boards of directors should not be constituted of mostly members with family or business relationships.
In Maryland, the mental health service cannot give state funds to non-profits that have boards made up mostly of family members. An organization with only three people would be severely affected if 2 of them are related. This is another reason to establish family-participation clauses in the bylaws statutes. Finally, a significant factor to take into account is the function and contribution of the members.
Effective non-profits have a strong and genuine board that carries out their duties effectively and fairly. They must strengthen the strength of the non-profit organization. If the members are related to each other and helping to improve the makeup of the organization, then the organization can take steps to accommodate the relationship.
Compensation for Non-Profit Founders
A nonprofit founder can pay himself a fair salary for the work he does running the organization. The IRS expects that you’ll pay yourself reasonable compensation for the services you provide—and it judges reasonableness on the basis of comparable salaries for comparable organizations. The very nature of a nonprofit means that members, directors, or officers cannot unduly benefit.
The founders of a nonprofit are not permitted to make a profit or benefit from the net earnings of the organization. They can make money in various other ways, however, including receiving compensation from the nonprofit.
When you are paid a nonprofit salary, you are less likely to burn out or have to put your nonprofit on hold while you earn money at a traditional job which is tough and can really slow down the growth of your new nonprofit.
A nonprofit designation and tax-exempt status are given only to organizations that further religious, scientific, charitable, educational, literary, public safety or cruelty-prevention causes or purposes.
There is an exception, however, that allows the nonprofit to pay reasonable compensation to staff members and others who provide services to the nonprofit.
Funders act as a check on compensation packages. If the public sees that a large portion of all revenue is going to the salary of one individual, they may be hesitant in donating.