Every nonprofit will face this moment: a board member has a personal interest in a decision the board is about to make. Maybe the organization wants to hire that member's company, rent that member's building, or pay that member for services.
That is a conflict of interest — and it is not automatically wrong. What causes trouble is handling it quietly, with no rules and no record.
A written conflict of interest policy solves that, in three simple steps:
1. Disclose it. The board member says, out loud and on the record, “I have a personal interest in this.”
2. Step out. That member leaves the discussion and does not vote on the matter.
3. Decide and document it. The rest of the board compares prices and options, chooses what is best for the organization — not for the member — and writes the decision in the minutes.
Here is what many founders do not know: the tax code does not, by itself, require this policy. But the IRS asks about it twice. Form 1023, the application for tax-exempt status, asks whether you have one — the IRS even provides a sample. And every year, Form 990 asks whether you have a written policy, whether board members disclose their interests each year, and whether you actually follow it. Those answers are public. Donors and grantmakers read them.
Some states go further and require a policy by law.
The best time to adopt one is at your very first board meeting, before any money moves — and then renew the disclosures once a year. It takes one page and a few minutes. In return, it protects the organization, protects the board member, and shows the IRS and your donors that your nonprofit runs honestly and in the open.
— 501c3 Expert
We handle all your 501(c)(3) paperwork — nonprofits set up from start to finish, and Form 990s prepared every year.
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