Founders and board members alike cannot legally profit from their NPO. They may be reimbursed for expenses, but they cannot receive any special favors, they cannot directly profit from the sale or endorsement of any instruction or advertisement, and though the members’ companies can do business with the NPO, the members in question are not allowed to vote on any decisions involving their company. Conflicts of interest are a decidedly grey area, and knowing the ins and outs of legal operations means having a clear idea of how to avoid these potential conflicts of interest.
Board members may be deemed unsuitable because they have a clear conflict of interest with the work or results of a particular nonprofit organization. Such conflicts can result in a tax-exempt status application to the IRS being denied. If a person stands to make money off his or her involvement with a nonprofit, then their participation on the board is very likely illegal. Other conflicts of interest could be membership in an organization or regular employment at a company that inherently conflicts with the mission of an NPO as a charitable organization.
Though a high school science teacher who wants to assist an NPO agency as part of classroom curriculum is considered a public good, a board member who owns a business that will profit off of the publicly unavailable research of the NPO is considered a breach of trust and conflict of interest.
Potential board members who have a conflict of interest may still be signed on to the board as members, but they will likely have to sign some additional statements saying that they will keep such affairs separate. For this situation, the legal and practical advice of a tax attorney is indispensable. Professionals will be able to explain what relationships are legal and what sort of language is necessary to make documents regarding conflict of interest binding and legal.
