When forming a nonprofit, one common question is whether board members can be related by family or business ties. While the answer is yes, there are important guidelines and best practices to follow to ensure transparency and avoid conflicts of interest.

To maintain the integrity and independence of the organization, the IRS requires that nonprofit boards have a majority of “uninterested” individuals. This means that a majority of your board members must be:

These “uninterested” individuals help provide objective oversight and prevent conflicts of interest, ensuring that the nonprofit operates in the best interest of the public, rather than for personal gain.

The IRS and state regulators emphasize the need for a diverse and independent board to ensure proper governance and accountability. A board that consists primarily of related individuals might raise concerns about potential conflicts of interest, particularly if decisions about salaries, contracts, or financial management involve family members.

For example, a board made up mostly of family members or business associates could face scrutiny if those individuals are making decisions that benefit their own interests rather than the nonprofit’s mission.

To avoid conflicts of interest and maintain good governance, it's essential to have an appropriate mix of independent board members who are not related or financially tied to one another. In addition to IRS rules, many states also have specific regulations about how many board members can be related.

A conflict of interest occurs when a board member’s personal or financial interests could compromise their decision-making on behalf of the nonprofit. For example, if a board member is related to an employee of the nonprofit or has a financial stake in a company that provides services to the nonprofit, they may be seen as having a conflict of interest.

To mitigate conflicts of interest, many nonprofits adopt conflict-of-interest policies that require board members to disclose any potential conflicts and recuse themselves from decisions where their impartiality could be compromised.

Another important best practice for nonprofit boards is to ensure you have an odd number of board members—such as 3, 5, or 7. This helps prevent a voting deadlock when the board is making critical decisions.

When the board is evenly split on an issue, having an odd number of members can provide a tie-breaking vote, ensuring decisions can be made efficiently without causing unnecessary delays.

Ultimately, while related individuals can serve on a board of directors, the goal is to ensure that your nonprofit’s leadership remains independent, transparent, and focused on the mission of the organization. By maintaining a majority of uninterested board members and following best practices for governance, you’ll help protect your nonprofit from conflicts of interest and uphold the public’s trust.

Instant Nonprofit provides each of our customers with an IRS-compliant conflict of interest policy, ensuring that your nonprofit is equipped to navigate potential conflicts and maintain proper governance. This policy helps you identify and address situations where personal or financial interests could influence decision-making, ensuring transparency and protecting the integrity of your organization. With our support, you'll have the tools you need to confidently manage these dynamics while staying in compliance with IRS requirements.