16 Jun 2015

Help, My Board Isn't Balanced!

Founder Raul Rivera

With all of the rules and regulations that churches are expected to follow, one may easily wonder how a church is expected to efficiently operate today in the world of church compliance. Pastors face the fact that the composition of their board of directors matters.  Yet, no matter how much experience they may have, many are not aware that there are specific rules regarding who serves on your board; especially when it comes to family and compensation. For many, the topic of “board of directors” is a very sensitive topic. Generally, a board consists of individuals that you truly know and trust. These are the individuals who have helped you start the church you are pastoring. They are the ones who have been there during the good times and the not-so-good times.

For this reason, I want to take a moment in today’s post to talk to you about how the IRS views the board of directors (or governing body) of a nonprofit organization and what it means to have a “balanced board of directors”.

Purpose of a board of directors

The board of directors is a group of individuals responsible for making the decisions within a church. They are the ones responsible for the management of the activities, affairs, and assets of the church, and because the board of directors can exercise such influence over the organization, the IRS has established some guidelines on how the board should be constructed.

IRS Publication 4221-PC states, “To guard against insider transactions that could result in misuse of charitable assets, the governing board should include independent members and should not be dominated by employees or others who are not independent because of business or family relationships.”

Now, this is not telling us that family members cannot serve on your board, but rather that it should not consist of mainly family members. Therefore, a majority of the board should not be made up of one family unit, as to not tip the balance in favor of one individual or family.

What does having a “balanced board” mean?

A balanced board is a term we have created to describe two requirements found in IRS regulation. IRS regulation requires that the majority of the members of the board be both unrelated and uncompensated. Let us look at both of these a little more so that we may have a better understanding.

  1. Unrelated:  When a board is made up of mostly family, it falls out of balance. Treasury Regulation 53.4958-3(b)(1) defines family as “spouse, brothers or sisters (by whole or half blood), spouses of brothers or sisters (by whole or half blood), ancestors, children, grandchildren, great grandchildren and spouses of children, grandchildren, and great grandchildren.” Under this definition, younger churches may find it a little more difficult to establish a balanced board. But do not be discouraged. Your board members do not have to be members of the church, nor do they have to live in the same city. They can be pastors and/or trusted individuals that you know want your church to succeed.
  2. Uncompensated: Another requirement is that the majority of the board be made up of individuals that are uncompensated. A common question that comes up is, “Can a board member serve as a “volunteer board member”, be compensated for serving in another position such as pastor or worship leader, and be considered uncompensated?” That is a legitimate question to ask; but in this instance, being compensated is not only referring to compensation received because they are a board member. Rather, the IRS considers a board member compensated if he/she receives any compensation from the organization for serving in any position.

What does a balanced board look like?

To help us understand what a balanced board looks like, let us consider the following examples:

Example 1: Pastor William is getting ready to plant a church in Little Rock, Arkansas. Since he has decided to go through the StartRIGHT program to establish his church’s legal foundation, Pastor William decides that he will serve as the president of the board (in addition to being the senior pastor ) and his wife will serve as the vice president of the board. In this case, he will need to have 3 other board members who are not related to him or his wife in order to maintain a balanced board.

Example 2: Pastor William’s church is experiencing a season of growth. Attendance is up, giving has increased, and they are having a mighty impact within their community. Because of this, the church wants to compensate Pastor William for his service as pastor and compensate his wife for her role as associate pastor. While this is perfectly okay, the other 3 board members should remain uncompensated to ensure that their board remains balanced.

Necessary steps to take

Perhaps this is the first instance you have heard that your board of directors should be “balanced”. If that is the case and you are wondering how to implement a “balanced board”, you may want to consider taking the following steps:

  1. Evaluate your current board to see if a majority is unrelated and uncompensated.
  2. If the majority is not unrelated and/or uncompensated, determine the number of people that must be added in order to balance the board.
  3. Look at your bylaws and determine what steps are required to add or remove board members.
  4. If your bylaws do not detail the procedures for adding or removing board members, adding such provision is super important. We can help you get that added with our StartRIGHT program.

Conclusion

Finding board members to serve is certainly a task that merits careful thought and consideration. If you believe that your board is not set up in a way that is compliant with IRS standards, feel free to give us a call at 770-638-3444. We will be happy to talk with you about your board of directors so that you can confidently walk in the vision and dream that God has given you.

Please feel free to comment. We always appreciate good dialogue. However, we do moderate each comment to ensure that it is on topic and not derogatory to other participants. We ask that you keep your comments brief and pertinent to the topic so that others may benefit.

Blessings,
Raul Rivera


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