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Must trade association expand its board?

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Must trade association expand its board?

A non-legal adviser to our 501(c)(6) trade association is stating that we need to add 11 new directors to the board of our 43-year old Association. She is saying that all nonprofits are the same and in her experience we have survived without the expanded structure because our auditor cares about taxes and not structure. All of this came up because our bylaws need an update. What do you think? 

I am highly skeptical of anyone who says that all nonprofits are the same.  In more than 40 years of experience with nonprofits of all types and sizes, I can assure you that that statement is not true.

The IRS requires a trade association to represent its members in improving a line of business and they often have larger boards to represent a broader range of their members.  But the IRS has no magic number for a board, and Congress specifically rejected a suggestion to set parameters for the size of the board when it added significant new regulations in the Pension Protection Act of 2006.  Many states have minimum requirements for the number of directors, but I am not aware of any state that otherwise sets the number required.

As usual, when confronted with a statement that doesn’t sound correct, ask her to give you a citation for the source of the requirement.  It is possible that you may have some internal requirements that are not required by law, but if so, you can probably change them if it is appropriate to do so.  You should set the size and composition of your board to meet the needs of your organization, not to meet an arbitrary number that doesn’t really exist.

Tuesday, July 2, 2019

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Comments

The old phrase "a little knowledge is dangerous" comes to mind. There are over 20 (29 I believe) different type of non-profits so if all are the same, why the need for so many? There are many "associations" that are huge, some are small. The PGA is a non-profit but payes taxes on their non-business related income, so it the NBA. If she persists (I've had a professional who was wrong but persistent as well), pull up the 501-c-6 rules from the IRS and asked her for proof. That is what I had to do in the past. I formally ran a 501-c-6 and had a 9 member board for decades (and it still does).

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