Does a Nonprofit Board Have to Approve Contracts or Can the Executive Director Do That?

By Terry Masters

A nonprofit's board of directors is legally responsible for financial oversight of the organization. By adopting bylaws that set organizational controls and hiring a competent executive director to manage the nonprofit's day-to-day affairs, the board ensures that the organization can further its mission without needing its daily input. While the board of your organization can delegate authority to handle ordinary business matters, certain types of contracts may still require board approval.

Nonprofit Governance Under State Law

A nonprofit operates under the laws of the state where it is incorporated. Since a nonprofit pursues a mission rather than profit, the law places heightened responsibility on the organization's board for financial and managerial oversight. The board of nonprofits with federal tax-exempt status are also held responsible by Internal Revenue Service for proper fiscal management to ensure taxes are paid and revenue is spent in legal ways.

Delegation of Authority

Although your nonprofit's board must govern the organization and provide oversight, it probably delegates day-to-day management authority to an executive director who is an employee of the nonprofit. For most organizations, it's not feasible or desirable for the board to be involved in every operational decision. A nonprofit, like most businesses, typically functions best with a single leader who is completely involved in day-to-day affairs. Your organization's board of directors can meet its oversight responsibilities by adopting bylaws putting policies in place to define the role of the executive director and hiring a qualified candidate to fill the executive director position.

Ready to form a nonprofit? Get Started Now

Routine Contracts

Unless your organization's bylaws or a specific policy adopted by the board says otherwise, the executive director is typically expected to execute contracts that further the nonprofit's mission. Your board might meet once a month or less frequently, and the directors are probably volunteers who have other engagements. It would be difficult for your nonprofit's executive director to get board approval for every contract that the organization needed to sign. Instead, the executive director typically has the authority to approve contracts within the scope of ordinary business without needing the direct approval of your organization's board.

Extraordinary Contracts

Generally, an executive director can approve contracts unless prohibited by the board. However, the board may establish protocols that require board approval for certain types of contracts. For example, the board may require board approval for contracts involving dollar amounts above a set limit. Proof of board approval may also be required by the other contracting party if it is concerned about proper authorization and board oversight of the transaction.

Ready to form a nonprofit? Get Started Now
Can a Nonprofit Board Fire the Executive Director?



Related articles

Legal Obligations for Hiring an Executive Director of a Nonprofit

Hiring an executive director is an important step for any expanding nonprofit. In addition to practical considerations in finding a good match for your organization, you must also consider the role and duties of the board of directors in selecting an executive director. Additionally, both the federal and state government provide rules on compensation of nonprofit employees.

C Corp Salary Rules

A C corporation is a type of business organization that is a separate legal entity from its owners, or shareholders. This means that the shareholders are not personally responsible for the business’s liabilities, but the corporation must take steps to meet certain responsibilities. One of those responsibilities is paying its employees. The rules for paying salaried workers of a corporation may vary based on whether the employee is a shareholder of the corporation and whether the salary is considered "excessive."

How to Remove an Officer of a Corporation

The individuals charged with making important strategic and financial decisions for a corporation must act based on the information available at the time. Sometimes, an appointed officer does not live up to the expectations of the board of directors and his removal is necessary. Understanding the protocol for removal -- and the strategic roles that company bylaws and shareholder voting play in the process -- can help you determine whether a corporate structure is right for your business. Those who run a small or closely held corporation face additional considerations if shareholders take on a director or officer role or if only a few individuals hold the majority of shares.

Doing the right thing has never been easier. Nonprofit

Related articles

The Responsibilities of the Board of a C Corp

A "C" Corporation is the standard form of a corporate entity; it is a separate legally taxable organization, which ...

The Role of an Executive Director of a Non-Profit Organization

The executive director of a nonprofit has numerous duties, the most important of which is carrying out the mission of ...

Does an LLC Have a Board of Directors?

All state laws require a corporation to have a board of directors that is elected by the shareholders. This is a form ...

Liability of the Directors of a Nonprofit Corporation

When a nonprofit corporation loses a lawsuit or otherwise owes money, the general rule is that individual members of ...

Browse by category
Ready to Begin? GET STARTED