CNC 501(c)(3) Governance & Bylaws 2 — Questions and Answers
Question 1: Under the duty of care, a nonprofit board member is expected to act with the care of a:
- Certified public accountant reviewing financials
- Ordinarily prudent person in a similar position under similar circumstances (Correct answer)
- Licensed attorney interpreting state law
- Professional executive director managing operations
Correct answer: Ordinarily prudent person in a similar position under similar circumstances
The duty of care requires board members to act as an ordinarily prudent person would in a similar role and circumstances.
Question 2: What is 'quorum' in the context of nonprofit board meetings?
- The agenda distributed before a meeting
- The minimum number of board members required to conduct official business (Correct answer)
- A formal vote requiring unanimous consent
- The written record of decisions made at a meeting
Correct answer: The minimum number of board members required to conduct official business
A quorum is the minimum number of board members who must be present for the board to legally conduct business and take official action.
Question 3: Which IRS form must most 501(c)(3) organizations file annually to maintain tax-exempt status?
- Form 990 (Correct answer)
- Form 1023
- Form 1040
- Form 8283
Correct answer: Form 990
Form 990 (or 990-EZ or 990-N depending on size) is the annual information return required by the IRS to maintain 501(c)(3) status.
Question 4: A nonprofit's bylaws typically specify the process for which of the following?
- Applying for government grants
- Electing and removing board members (Correct answer)
- Setting employee salaries
- Registering charitable solicitations with states
Correct answer: Electing and removing board members
Bylaws govern internal organizational procedures including how board members are elected, their terms, and removal processes.
Question 5: Which of the following best describes the role of a nonprofit's executive committee?
- A group of paid staff managing day-to-day operations
- A board subgroup authorized to act on behalf of the full board between meetings (Correct answer)
- The founders of the organization who retain veto power
- The committee responsible solely for annual budget approval
Correct answer: A board subgroup authorized to act on behalf of the full board between meetings
An executive committee is typically a subset of the board empowered to handle urgent matters when the full board cannot convene.
Question 6: What must a 501(c)(3) organization do if it wants to significantly change its mission?
- Notify all donors by mail within 30 days
- File an amendment with the IRS and potentially update its Articles of Incorporation (Correct answer)
- Simply update its website and marketing materials
- Obtain approval from the state attorney general only
Correct answer: File an amendment with the IRS and potentially update its Articles of Incorporation
Significant mission changes may require amending the Articles of Incorporation and notifying the IRS, since the organization's tax-exempt purpose is tied to its stated mission.
Question 7: The 'duty of loyalty' requires nonprofit board members to:
- Prioritize the organization's interests over personal or third-party interests (Correct answer)
- Remain loyal to the founding executive director regardless of performance
- Never resign from the board before their term ends
- Support every decision made by the board chair
Correct answer: Prioritize the organization's interests over personal or third-party interests
The duty of loyalty requires board members to put the organization's best interests first and avoid self-dealing or conflicts of interest.
CNC 501(c)(3) Governance & Bylaws 2
Under the duty of care, a nonprofit board member is expected to act with the care of a: