Generally, a nonprofit is another term for a 501(c)(3) organization. These groups are IRS-approved entities that are regulated by states and have a charitable, educational, religious or public safety purpose. This status exempts the organization from taxes and allows people who donate to these groups to deduct their gifts from their taxable income. These organizations can control a sizable amount of assets, so having the right structure to help manage those resources is key. There is no single organizational structure that works for all nonprofits; the structure must be adjusted to the specific needs of each organization. Generally, a nonprofit's organization is based on the type of work it does and the resources it has to pay staff.
Board of Directors
While requirements differ, all states require every nonprofit to have at least one director. The Board of Directors is normally led by a chairman who is chosen by the other directors. The board provides oversight for the nonprofit, ensuring it satisfies all legal requirements. The board also dictates the strategic direction of the nonprofit. While the general purpose of the nonprofit may be defined, how the nonprofit will specifically achieve those aims may not be. Therefore, the board establishes the specific goals the nonprofit will pursue to achieve its broader purpose.
Generally, nonprofit boards are composed of volunteers who are not paid, have different skill sets and have limited time to devote to the organization. To address these concerns, a nonprofit board may form committees. Each committee is structured to address specific aspects of operations that are especially important to the business, such as fundraising, auditing and budgeting. By forming committees, directors with the skills best suited to a particular task can spend their limited time on those issues. This can increase the board’s efficiency and decrease the demands on individual directors.
The second key job of a nonprofit board is to hire an executive officer, otherwise known as the executive director or chairperson. While the board may make broad strategic decisions for the nonprofit, it is the executive director who manages the day-to-day tasks of the nonprofit. The executive director is appointed by the Board of Directors and is responsible for hiring staff and carrying out the goals established by the board. This requires the executive director to design and implement plans that will allow the nonprofit to achieve the goals established by the Board of Directors.
While the executive director is responsible for day-to-day operations, she cannot run the nonprofit alone. Therefore, with the advice and consent of the board, she is allowed to hire department heads. Like the board committees, department heads focus on important functions of the nonprofit, such as budgeting and fundraising. By hiring individuals skilled in particular areas, the nonprofit can act more efficiently in achieving its goals. However, with the executive director overseeing the work of department heads, the nonprofit can be assured each department’s work is promoting the goals of the nonprofit.