While one person cannot technically "own" a nonprofit, they can exert control through a sole member structure, where the founder acts as the sole voting member who appoints the board of directors. However, legal requirements generally necessitate a board to oversee activities, and excessive control can trigger IRS scrutiny regarding private benefits.
Governance responsibility is vested in the board of directors or trustees. These individuals are accountable to state and federal authorities to ensure the organization operates in a legally compliant manner and for the purposes outlined at formation. Also, a nonprofit cannot be sold.
Even though the IRS doesn't see anyone as “owning” a nonprofit, one person can still have significant control over how it runs. That's called a sole member nonprofit. As the sole member, you get to make major decisions and even appoint or remove the board members yourself.
The "33 rule" for nonprofits usually refers to the IRS Public Support Test, requiring 501(c)(3) public charities to show they receive at least one-third (33 1/3%) of their support from the general public or other public charities over a five-year rolling period, distinguishing them from private foundations by ensuring broad community reliance. This is crucial for maintaining public charity status, involves reporting on Form 990 Schedule A, and can be passed through meeting the 10% "facts and circumstances" test if the main test is missed.
The 80/20 rule (Pareto Principle) for nonprofits suggests that roughly 80% of results come from 20% of causes, most commonly meaning 20% of donors provide 80% of donations, but it also applies to programs, volunteers, and marketing efforts, guiding organizations to focus resources on high-impact areas like major donors or effective programs for greater efficiency and fundraising success. It emphasizes donor stewardship, program evaluation, and targeted communications to maximize impact, though some argue for diversifying away from over-reliance on a small donor base.
If the entire board is in violation or is not being responsive, that may be grounds for a lawsuit or other formal legal action that may require involving external authorities. Again, seek legal advice about how to best proceed in order to resolve these issues.
The IRS permits nonprofits to generate surplus funds, as long as those funds are then reinvested into activities that support the mission of the organization. The IRS has no issue with profit - rather they have an issue with that profit benefiting individuals, such as your staff or nonprofit board of directors.
A nonprofit treasurer is a team member who provides financial oversight for an organization. In most cases (although not all), the treasurer is a member of the board of directors and serves as the financial liaison between the nonprofit's board and staff.
Under IRS rules, for 501(c)(3) organizations, revenue from the nonprofit cannot inure to the benefit of a shareholder or individual. There is an exception, however, that allows the nonprofit to pay reasonable compensation to staff members and others who provide services to the nonprofit.
Executive Director/CEO
The Executive Director (ED) or CEO leads the nonprofit and sets the tone and culture of the organization. Responsibilities include: Strategic planning: Develops and implements the long-term strategy and vision to align with the organization's mission.
Disadvantages of Nonprofits You May Have Overlooked
Instead of an owner, nonprofit governance is handled by a board of directors or trustees. The nonprofit board acts like the organization's legal guardians. They don't run the day-to-day operations (that's the job of the executive director and staff), but they do have the final say on major decisions.
What should a nonprofit pay its chief executive? The board of directors is responsible for hiring and establishing compensation (salary and benefits) for the executive director/CEO that is “reasonable and not excessive,” but is also enough to attract and retain the best possible talent to lead the organization.
What are the most common mistakes nonprofits make? Some of the most common mistakes include unclear missions, weak board engagement, poor donor communication, lack of financial transparency, and neglecting compliance requirements. Many of these issues are fixable with the right tools and support.
The short answer is that there are no specific legal limits on the number of employees a 501c3 can have. The size of your workforce can vary based on the goals, funding, and scope of your organization.
These expenses typically fall into three main categories:
A board governance/board development committee sets the pace, creates systems to wire in accountability, and ensures that the rules established for board members are followed, including ensuring that all nonprofit funds are accounted for in a transparent and compliant manner.
If the nonprofit is sued and lacks the proper planning and protection, you could lose your savings, your home and other assets. Nearly two out of three nonprofits reported a Directors & Officers liability claim within the past 10 years.