The IRS looks at board composition for evidence that an organization serves the public rather than the people who founded it. A board is generally viewed as independent where a majority of directors are unrelated by blood, marriage, or business dealings, and are not compensated. An entirely related board is the problem.
Independence is the central question
The concern behind the rules is private benefit: an organization using charitable status to serve insiders. A board made up of the founder, the founder's spouse, and the founder's business partner does not reassure anyone that this concern is addressed.
A board is generally viewed as independent where a majority of directors are unrelated by blood, marriage, or business dealings, and are not compensated by the organization. That does not make a related director improper, it makes an entirely related board a problem.
How many directors
State law sets a minimum, often one or three. That minimum is rarely the right answer. Three is a workable floor for a small charity; five to seven gives you real deliberation and covers absences without becoming unwieldy. Very large boards look impressive and frequently govern poorly.
Compensation deserves care
Nonprofits may pay reasonable compensation for actual services, including to a founder serving as executive director. What matters is process: the amount should be approved by directors with no financial interest in it, benchmarked against comparable organizations, and documented in the minutes. Doing it properly is straightforward; doing it casually is what creates exposure.
What boards owe the organization
- Duty of care, pay attention, read materials, attend meetings, ask questions
- Duty of loyalty, act in the organization's interest, disclose conflicts, step back from votes where you have one
- Duty of obedience, stay within the mission and the law
Recruiting well
Look for the skills you lack rather than the friends you have. Financial literacy, sector knowledge, and community credibility are worth more than enthusiasm alone. Tell candidates plainly what is expected, meeting attendance, committee work, any giving expectation, before they accept. Unclear expectations are the main reason board members quietly disengage.
Keep records
Minutes for every meeting, signed conflict disclosures annually, and a current roster with terms. These take minutes to maintain and are the first thing requested in any IRS inquiry, audit, or major grant application.
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This article is general information, not legal advice, and reading it does not create an attorney-client relationship. Rules differ by state and change over time. Please speak with a licensed attorney about your own situation.