The Nonprofit FAQ

Can more than one member of a family serve on a single nonprofit board?

Bob Maddox wrote to Nonprofit (see http://www.rain.org/mailman/listinfo/nonprofit) on September 29, 2006: I have a 2 part question. Has anyone had experience with Board members that are related? Also has this presented any problems with the IRS in terms of getting approval for non-profit status? Channing Hillway of Aristarcus Communications in Oak View, California, provided this background and advice: There is some consensus that the IRS likes what I call the “California model” for enforcing its rules. They seem to like to start by asking questions about why the California model is not being followed, and then are willing to give if the rules in a given state allow a more loose operation than is allowed in California. California had a large group of nonprofits — some decades back — that were set up to protect family wealth from taxation. All of the members of the board were family members, or possibly a family lawyer was included. That all had to come to an end and California changed it’s law. California allows members of the same family to be on the board of directors so long as they never have the opportunity to constitute the majority of those on the board. It may be called the 49 percent rule. Members of the same family may be on the board so long as no more than 49 percent of board members belong to that family. There’s a little more to it that has to do with “interested” persons, those who have a personal financial interest in the organization, and CA guidelines can be reviewed on the Internet at <http://ag.ca.gov/charities/publications/guide_for_charities.pdf>. The bottom line, then, is that if something catches the eye of the IRS and they investigate, they will start looking at everything, including whether or not the 49 percent rule for board membership and board members as “interested” persons is being followed. There are likely to be problems if two or more family members are serving on the board. The first problem is a natural rivalry that develops between siblings or husband and wife. It sounds silly, but it is commonplace. A great deal of time is wasted discussing details that become bones of contention that are mainly about who is the dominant player, such as on issues of choosing new stationery, painting a room or purchasing new office furniture, and an endless parade of trivia. The second problem is that everyone else on the board is aware of the family members and expects them to become exclusionary in their dealings, which they often are, the family members coming in with an agenda and responding negatively if other board members suggest something different. So first its the family members in contention with each other, but then clearly united in contention with everyone else. Certainly this is not always the case. It is, however, what non-family members on the board will expect, even if it’s an unconscious response. So it’s best to not have more than one member of a family on the board, and better if no board members are paid — but often that’s an ideal that cannot be achieved, especially in small organizations. Posted 9/29/06 -- PB