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I am involved in a non-profit organiztion where the more…

I am involved in...

I am involved in a non-profit organiztion where the more than two related parties make up the board. I understand the IRS rules governing such, however i have been arguing and fighting with the board over a simple fact. The chairman and the treasurer are husband and wife. They have sole control over the monies in and out of the organization. I find a huge conflict of interest here. But they do not, am i wrong and how is it fixed. They request something in writing and i have been researching this for months. But haven’t gotten something that says it’s a conflict. I now ethically it is, but how do i do this properly?

Lawyer's Assistant: Can you tell me where the nonprofit is registered?

New York

Lawyer's Assistant: Has anything been officially filed? If so, what?

Yes 501c3

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Answered in 6 hours by:
3/20/2018
Attorney Wendy
Attorney Wendy, Attorney
Category: Business Law
Satisfied Customers: 1,175
Experience: Member at Keefer & Keefer LLC
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Hello. My name is ***** ***** I am an attorney. I am working on a response to your question and should have that to you shortly.

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Under the IRS rules governing the board of directors of a 501(c)(3), family members may be on the same board, including a husband and wife. That said, if family members are on the board, there should be at least 3 other members who are unrelated by family or employment with the non-profit. And, it is critically important for the non-profit to ensure that decisions being made do not inure to the benefit of individual board members. The reason 3 additional members should be on the board when there are two who are family members is that if these family members vote together all the time, they essentially act as one director with two votes. Thus, enough directors to balance that voting power who are independent is necessary for good governance. In addition, though not technically illegal, the fact that they hold two offices - that of chairman and treasurer - may be something the other board members should reconsider in terms of ensuring no decisions are made that inappropriately may benefit the couple. Changing who holds these offices would require compliance with your bylaws for holding such elections and getting enough other directors to agree to a change . You also mentioned that more than two related parties are on the board, if the board is comprised of other members of this same family you would again need at least enough board members independent from that family. It is not automatically unlawful for a whole bunch of family members to be on the board of a non-profit, but at some point the organization stops looking like a legitimate non-profit and looking like a business serving the needs of that family; so decisions have to evaluated closely to ensure decisions are for the benefit of the non-profit's purpose.

I can only imagine that this may be frustrating, particularly if they appear to knowingly use their joint authority to control the non-profit. If they are making decisions that are not in furtherance of the goals of the non-profit that would raise other issues of the need to consider removing them to avoid any questions from the IRS or New York Secretary of State.

I hope this helps. I know it does seem on its face like this may be a conflict of interest but sometimes the law has to balance allowing some seemingly troublesome situations to promote the greater purpose of getting people to agree to serve on the boards of non-profit organizations. If you need further assistance, please reply to this email. If I answered your question and provided excellent service, I would greatly appreciate your 5 star rating at this time.

Please note: This information is for educational purposes only and is not legal advice. No course of action is being proposed and no attorney-client relationship or privilege has been formed as a result of this conversation.

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Customer reply replied 4 months ago
Wendy thank you so much for your response. It was helpful. There two separate families that hold a majority of the board. My real concern is that with the chairman and treasure. Being related and the only two people that have any idea what money is in the account and they only two that issue checks. So i hope you can see my concern. It is a great organization and I’m trying to come up with a way to change the board alittle so that we don’t run into problems i. The future. Like that old saying “absolute power corrupts absolutely”. The thing that concerns me the most is when they are challeneged about monies in the account or asked to step away they fight viciously to keep their positions. There are only there positions held that get a stipend and that’s two of them furthering my argument i believe.

I would totally have the same concerns as you do. Unfortunately, there might be some solution if they were chairman and secretary, as New York's non-profit law prohibits the same person from holding those two offices (President/Chairman and Secretary) but not chairman and treasurer, which is odd but legally common. And, if they held those two prohibited offices for one person, you might be able to argue they essentially are one person. But there is no prohibition for one person to hold chairman and treasurer. I think the original thought was since the Secretary is keeper of all records, that office should be separate from the top of the chain.

Non-profits are so rewarding, but often do seem to come with governance drama. Best of luck making some changes!

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And, if you can ever show they are voting or making decisions as officers to benefit themselves (e.g., they should not vote on any decisions regarding the stipends for the offices they hold) that would start to become a conflict and against various legal prohibitions.

Attorney Wendy
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Experience: Member at Keefer & Keefer LLC
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