Clients often ask us about the role of nonprofit officers. The IRS, unfortunately, is not too helpful on this front, saying that “an officer is a person elected or appointed to manage the organization’s daily operations.” In nonprofit organizations, there are actually two different types of officers – Board Officers and Employee Officers.
Volunteer Board Officers
Every nonprofit has a Board of Directors. From the people serving on the Board of Directors, a nonprofit should select at least two Board Officers: 1.) a President/Board Chair, and 2.) a Treasurer. Legal for Good also recommends that nonprofits select a Secretary as a Board Officer.
Board Officers implement the tasks delegated to them by the Board of Directors, or as required of them under the nonprofit’s Bylaws or state laws. Board Officers, by virtue of their service on the Board of Directors, have a right to vote on organizational issues. Because of nonprofit law requirements surrounding limited liability protection, most Board Officers are uncompensated volunteers.
Your Bylaws will tell you how the Volunteer Board Officers are chosen. Sometimes, they are elected by general members with voting rights; other times, the Volunteer Board Officers are appointed or elected by the Board of Directors.
If your nonprofit does not appoint or elect Volunteer Board Officers, then Minn. Stat. § 317A.321 comes into effect. This law says that “In the absence of an election or appointment of officers by the board or the members with voting rights, the person exercising the principal functions of the president or the treasurer is considered to have been elected to the office.” This is less than ideal. You want people to know that they are serving as the President or Treasurer of your nonprofit, rather than finding out, after the fact, that Minnesota law has assigned them to these roles as well as to any liability associated with the roles.
While every nonprofit must have Volunteer Board Officers, some also choose to have Paid Employee Officers.
Paid Employee Officers
As nonprofits grow larger, many hire paid officers (generally employees – see state law and IRS guidance). Paid Employee Officers go by titles like “Executive Director”, “CEO”, “CFO”. Paid Employee Officers are hired and fired by the Board of Directors, and they are directly accountable to the Board of Directors for their performance. Paid Employee Officers are typically hired to run the day-to-day operations and do not have voting rights.
It is important to understand that Paid Employee Officer positions function slightly differently than Volunteer Board Officers. Paid Employee Officers do not have limited liability protection under state statutes because most nonprofit statutes require that either no or only nominal compensation be paid. Instead, nonprofits generally carry additional liability insurance to cover Paid Employee Officers and manage the lack of statutory limited liability protection.
If you have additional questions about Volunteer Board Officers and/or Paid Employee Officers, please reach out to us. We exclusively represent charitable organizations and would be happy to schedule a free consultation with you.