Nonprofit lawyers are often asked the difference between directors and officers in a nonprofit corporation. Directors and officers are roles within a nonprofit corporation that serve essential functions and can be crucial to a well-run, efficient organization. However, individuals often confuse the two roles, making it important to understand the distinctions between them.
Board of Directors of a Nonprofit
The board of directors is typically a group of individuals who run and make high-level decisions for a nonprofit organization. The board focuses on the overall financial management of the organization. Some of the decisions that the board of directors makes include the following:
- Approving the annual budget
- Recruiting, interviewing, and hiring managerial positions
- Engaging in organizational strategic planning
- Establishing governance policies, including human resources matters and employee salaries
- Overseeing major repairs and acquisitions
The bylaws of the organization govern how and when board members vote on different issues. Board members typically are volunteers. Usually, new board members join the board after an existing member recruits them and the board members elect them, or a designated person or body appoints them.
Directors have no independent authority to act on their own. Instead, directors must vote on issues according to their bylaws to make any decisions. A single director cannot take any action or make any decisions on behalf of the nonprofit without express permission given by the Board during a meeting.
Officers of a Nonprofit
The board members of a nonprofit appoint or elect officers to carry out the organization’s day-to-day business within the scope of their roles.The most common types of officers in a nonprofit include:
- President or Board Chair
The bylaws of the nonprofit outline the roles of each officer. As nonprofits grow, they often hire paid staff members to serve as officers, usually in the capacity of the following roles:
- Chief Executive Officer or Executive Director
- Chief Financial Officer
- Chief Operating Officer
These officers typically perform daily tasks necessary to keep the nonprofit functional. These tasks include paying the bills, keeping business records, hiring and managing employees, and ensuring that the nonprofit performs according to its mission statement. Officers have individual authority to act on their own within the confines of their roles. For instance, a chief financial officer or treasurer can open a bank account or sign a check. Likewise, a chief operating officer can sign a contract for services for the nonprofit.
When Acting as a Director and Officer Becomes a Conflict of Interest
Nonprofit lawyers understand that it can be confusing when an individual serves as both a director and an officer. For instance, a treasurer is an officer but is also a director. This dual role sometimes can lead to actual or perceived conflicts of interest. The same is the case with officers who are paid staff members. For example, the duties of a chief financial officer may overlap with those of a treasurer in many cases.
In this situation, the other directors must evaluate the actions of a director who is also acting as an officer and those of any paid employees in managerial roles. The bylaws should clearly define the roles of all parties involved to help eliminate any confusion and avoid the perception of a conflict of interest.
A good example is determining the salary of the executive director of a nonprofit. Although the executive director may be both a board member and a paid employee, the executive director should not participate or even be present for any discussion or vote on their salary. The other directors should handle that issue without the executive director to avoid any conflict of interest.
Contact Nonprofit Lawyers to Explore Your Options Today
The attorneys and staff at Provident Law can provide you with individualized legal representation in all matters concerning nonprofit organizations, real estate, and churches. We will thoroughly assess your situation and determine the best course of action for you and your organization. You can call our nonprofit lawyers today at (480) 388-3343. We look forward to hearing from you and explaining the options that are available to you.