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Governance and Nonprofit Corporations: A Primer for Directors
I. INTRODUCTION
“Corporate governance” refers to the system of laws, documents, policies, and procedures that define how the board of directors of a corporation should oversee its affairs as well as to the manner in which board actually performs its functions and discharges its duties. In today’s environment, the governance of a nonprofit corporation is a major concern, and a responsible board will make the quality of its corporate governance a priority.
This Primer addresses basic laws and requirements relevant to the corporate governance of a Connecticut nonstock (nonprofit)[1] corporation that is exempt under section 501(c)(3) of the Internal Revenue Code.
II. STANDARDS OF CONDUCT AND DUTIES OF DIRECTORS
A. General. The directors[2] of a nonprofit corporation have obligations and responsibilities to the corporation. These duties are grounded in common law and state and federal statutes.
Importantly, all corporate powers are exercised by or under authority of, and the activities, property and affairs of the corporation managed by or under the direction of, its board of directors, subject to any limitation in the certificate of incorporation. ยง 33-1080 of the Connecticut General Statutes.
[1] The Connecticut Revised Nonstock Corporation Act, which establishes the state statutory scheme governing Connecticut nonprofit corporations, uses the term “nonstock corporation” instead of “nonprofit” or “not-for profit corporation.” Because “nonprofit” is more easily understood, this Primer generally uses the term “nonprofit” instead of “nonstock.” The Primer also generally uses the term “nonprofit” to mean tax exempt for federal income tax purposes even though not all nonprofit corporations are tax exempt.
[2] The term “director” as used throughout this Primer includes the individual members of a governing board of a nonprofit corporation, regardless of whether they are called directors or trustees.
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