A nonprofit business, also known as a not-for-profit business (NPO), is an organization which is tax-exempt and typically formed for the purposes of religious, charitable, literary, artistic, or educational pursuits.  An organization such as this means that its shareholders or investors do not benefit financially.  Profits earned from this type of organization must be retained within the organization for the purposes of expenses, operations and other aspects benefiting the organization.  There are various types of NPO organizations, with the most common being a 501(c)3.  An organization with a 501(c)3 status has a number of benefits which can include:

  • Federal tax exemption
  • Federal Unemployment Tax Act (FUTA) exemption
  • Donor tax-deductible contributions
  • Eligibility for grants by government and foundations
  • Possible eligibility for local and state tax exemption

 

Not-for-profits are a valuable resource to the business community.  They are comprised of a Board of Directors (BOD) responsible for the management and jurisdiction of the organization.  It is under the purview of the BOD to see to the hiring of the staff, assignment of operational duties, and to establish the limits and capital to disperse toward the mission of the organization. 

Directors have the authority of oversight of the organization as they are the policymakers. They have a fiduciary responsibility to the organization and the public to ensure that there is funding, staffing and guidance to fulfill the organization's mission.  Officers are identified according to the bylaws of the Board.  Typically they are the President, Vice President, Secretary and Treasurer, although there can be other officers with one individual potentially holding more than one position.  Description of the posts are also dictated in the bylaws.  Officers are not employees of the organization and do not hold paid positions.  The president serves as the spokesperson for the board with the vice president serving in the absence of the president. 

The first staff member to be hired by the BOD is most typically the executive director.  It is generally the responsibility of the BOD to hire and fire employees, unless this is delegated to the executive director.  The daily operations of the organization are the responsibility of the staff.  Policies and programs created by the BOD are delegated to the staff for the purposes of implementation. 

Conflicts can surface, particularly if an individual not only serves as an officer on the BOD but is also a staff member, such as a director.  An organization which has limited funds can make the decision to become involved in the daily operations of the organization by having individuals do double duty, which in itself is not a problem.  The potential for problems arises from someone being a member of the BOD and an employee of the organization, and can result in conflict on occasions. 

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