Is Your Church Board Balanced?
By Raul Rivera
With all of the rules and regulations that churches are expected to follow, you may often wonder, “How is a church supposed to operate efficiently while staying in compliance with so many regulations? And how am I supposed to figure this all out alone?”
No matter how much experience you may have, it is likely that you, along with hundreds of other pastors, are not aware that there are specific rules regarding who serves on your board, especially when it comes to family and employees.
For many, the “board of directors” can be a very delicate topic. Generally, a board consists of individuals that you truly know and trust. These are the individuals who have been pillars to lean on during the good times and the not-so-good times, the people who are going to help you make the tough decisions that a pastor makes on a daily basis, and those who help make ministry life less lonely.
Because the board of directors is such an integral part of the church, it is essential to know how the IRS views the board of directors (or governing body) of a nonprofit organization and what it truly 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 an organization. They are responsible for the management of the activities, affairs, and assets of the church. Since 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.”
It is essential to clarify that this is not telling us that family members cannot serve on your board, but rather that the board 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.
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, small churches may find it a little more challenging 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.
Another requirement is that most of the board be made up of uncompensated individuals. A common question is, “Can a board member who serves as a ‘volunteer board member’ be compensated for serving in another position such as pastor or worship leader, and be considered uncompensated?”
Though this would seem an ideal workaround, compensation refers to compensation in any capacity, not just compensation as an acting board member. Instead, the IRS considers a board member compensated if he/she receives any financial or material benefit from the organization for serving in any position.
What does a balanced board look like?
To provide clarity about what a balanced board looks like, here are a few examples:
Example 1: Pastor Carlos is getting ready to plant a church in Long Beach, California. Since he has decided to go through the StartRIGHT Service to establish his church’s legal foundation, Pastor Carlos 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 three other board members who are not related to him or his wife in order to maintain a balanced board.
Example 2: Pastor Carlos’s church is experiencing a season of growth. Attendance is up, giving has increased, and they are having a strong impact within their community. Because of this, the church wants to compensate Pastor Carlos for his service as pastor and compensate his wife for her role as associate pastor. While this is perfectly okay, the other three board members should remain uncompensated to ensure that their board remains balanced.
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Necessary steps to take
Okay, so now you know what a balanced board is, but what does that mean for you? If your board is unbalanced, how do you balance it? Glad you asked! Here are a few tips that will help:
- Evaluate your current board to see if a majority is unrelated and uncompensated.
- If the majority is not unrelated and uncompensated, determine the number of uncompensated and/or unrelated individuals that must be added in order to balance the board. You could also remove members of the board who are compensated or part of the largest family group.
- Look at your bylaws and determine what steps are required to add or remove board members.
- If your bylaws do not detail the procedures for adding or removing board members, adding such provision is super important. We can provide you with such language, as well as with other protective articles, through our StartRIGHT Service.
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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, please give us a call at 877-494-4655 or schedule a call below. 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.