Conflict of Interest Policy — Nonprofit Corporation

CONFLICT OF INTEREST POLICY

[ORGANIZATION NAME]

TABLE OF CONTENTS

1. Article I — Purpose
2. Article II — Definitions
3. Article III — Duty to Disclose
4. Article IV — Procedures for Addressing Conflicts
5. Article V — Violations
6. Article VI — Records of Proceedings
7. Article VII — Compensation Approval
8. Article VIII — Annual Statements
9. Article IX — Periodic Reviews
10. Annual Disclosure Statement
11. State-Specific Notes
12. Sources and References

ARTICLE I — PURPOSE

The purpose of this Conflict of Interest Policy is to protect the interests of [________________________________________] (the "Organization"), a tax-exempt organization under IRC § 501(c)(3), when it is contemplating entering into a transaction or arrangement that might benefit the private interest of an officer, director, or key employee of the Organization or might result in a possible excess benefit transaction as defined in IRC § 4958.

This policy is intended to supplement, but not replace, any applicable state and federal laws governing conflicts of interest applicable to nonprofit and charitable organizations.

ARTICLE II — DEFINITIONS

Section 2.1 — Interested Person. Any director, principal officer, or member of a committee with governing board-delegated powers who has a direct or indirect financial interest, as defined below, is an "Interested Person."

Section 2.2 — Financial Interest. A person has a financial interest if the person has, directly or indirectly, through business, investment, or family:

(a) An ownership or investment interest in any entity with which the Organization has a transaction or arrangement;

(b) A compensation arrangement with the Organization or with any entity or individual with which the Organization has a transaction or arrangement; or

(c) A potential ownership or investment interest in, or compensation arrangement with, any entity or individual with which the Organization is negotiating a transaction or arrangement.

Compensation includes direct and indirect remuneration as well as gifts or favors that are not insubstantial.

A financial interest is not necessarily a conflict of interest. A person who has a financial interest may have a conflict of interest only if the Board or appropriate committee decides that a conflict of interest exists, in accordance with the procedures set forth in Article IV.

ARTICLE III — DUTY TO DISCLOSE

In connection with any actual or possible conflict of interest, an Interested Person must disclose the existence of the financial interest and be given the opportunity to disclose all material facts to the directors and members of committees with governing board-delegated powers who are considering the proposed transaction or arrangement.

ARTICLE IV — PROCEDURES FOR ADDRESSING CONFLICTS

Section 4.1 — Determining Whether a Conflict Exists. After disclosure of the financial interest and all material facts, and after any discussion with the Interested Person, the Interested Person shall leave the meeting while the determination of a conflict of interest is discussed and voted upon. The remaining board or committee members shall decide if a conflict of interest exists.

Section 4.2 — Procedures for Addressing the Conflict.

(a) An Interested Person may make a presentation at the governing board or committee meeting, but after the presentation, the Interested Person shall leave the meeting during the discussion of, and the vote on, the transaction or arrangement involving the possible conflict of interest.

(b) The chairperson of the governing board or committee shall, if appropriate, appoint a disinterested person or committee to investigate alternatives to the proposed transaction or arrangement.

(c) After exercising due diligence, the governing board or committee shall determine whether the Organization can obtain with reasonable efforts a more advantageous transaction or arrangement from a person or entity that would not give rise to a conflict of interest.

(d) If a more advantageous transaction or arrangement is not reasonably possible under circumstances not producing a conflict of interest, the governing board or committee shall determine by a majority vote of the disinterested directors whether the transaction or arrangement is in the Organization's best interest, for its own benefit, and whether it is fair and reasonable. In conformity with the above determination, the governing board or committee shall make its decision as to whether to enter into the transaction or arrangement.

ARTICLE V — VIOLATIONS

Section 5.1 — Investigation. If the governing board or committee has reasonable cause to believe a member has failed to disclose actual or possible conflicts of interest, it shall inform the member of the basis for such belief and afford the member an opportunity to explain the alleged failure to disclose.

Section 5.2 — Corrective Action. If, after hearing the member's response and after making further investigation as warranted by the circumstances, the governing board or committee determines that the member has failed to disclose an actual or possible conflict of interest, it shall take appropriate disciplinary and corrective action, which may include:

(a) Written warning;

(b) Removal from the board or committee;

(c) Termination of employment;

(d) Requiring the Interested Person to return any improper benefit; or

(e) Referral to legal counsel for further action.

ARTICLE VI — RECORDS OF PROCEEDINGS

The minutes of the governing board and all committees with board-delegated powers shall contain:

(a) The names of the persons who disclosed or otherwise were found to have a financial interest in connection with an actual or possible conflict of interest, the nature of the financial interest, any action taken to determine whether a conflict of interest was present, and the governing board's or committee's decision as to whether a conflict of interest in fact existed;

(b) The names of the persons who were present for discussions and votes relating to the transaction or arrangement, the content of the discussion, including any alternatives to the proposed transaction or arrangement, and a record of any votes taken in connection with the proceedings.

ARTICLE VII — COMPENSATION APPROVAL

Section 7.1 — Voting Member Compensation. A voting member of the governing board who receives compensation, directly or indirectly, from the Organization for services is precluded from voting on matters pertaining to that member's compensation.

Section 7.2 — Committee Member Compensation. A voting member of any committee whose jurisdiction includes compensation matters and who receives compensation, directly or indirectly, from the Organization for services is precluded from voting on matters pertaining to that member's compensation.

Section 7.3 — Permitted Participation. No voting member of the governing board or any committee whose jurisdiction includes compensation matters and who receives compensation, directly or indirectly, from the Organization, either individually or collectively, is prohibited from providing information to any committee regarding compensation.

ARTICLE VIII — ANNUAL STATEMENTS

Each director, principal officer, and member of a committee with governing board-delegated powers shall annually sign a statement which affirms such person:

(a) Has received a copy of the Conflict of Interest Policy;

(b) Has read and understands the policy;

(c) Has agreed to comply with the policy; and

(d) Understands the Organization is charitable and in order to maintain its federal tax exemption it must engage primarily in activities which accomplish one or more of its tax-exempt purposes.

ANNUAL DISCLOSURE STATEMENT

[ORGANIZATION NAME] — Annual Conflict of Interest Disclosure

Fiscal Year: [________________________________________]

I, the undersigned, hereby affirm that:

☐ I have received a copy of the Organization's Conflict of Interest Policy.

☐ I have read and understand the policy.

☐ I agree to comply with the policy.

☐ I understand that the Organization is a tax-exempt organization under IRC § 501(c)(3) and must operate in accordance with its exempt purposes.

Disclosure of Financial Interests:

☐ I have no financial interests to disclose at this time.

☐ I have the following financial interests to disclose:

1. [________________________________________]
2. [________________________________________]
3. [________________________________________]

Name (printed): [________________________________________]

Title / Position: [________________________________________]

Signature: ___________________________________________

Date: [__/__/____]

ARTICLE IX — PERIODIC REVIEWS

To ensure the Organization operates in a manner consistent with charitable purposes and does not engage in activities that could jeopardize its tax-exempt status, periodic reviews shall be conducted. The periodic reviews shall, at a minimum, include the following subjects:

(a) Whether compensation arrangements and benefits are reasonable, based on competent survey information, and the result of arm's length bargaining;

(b) Whether partnerships, joint ventures, and arrangements with management organizations conform to the Organization's written policies, are properly recorded, reflect reasonable investment or payments for goods and services, further charitable purposes, and do not result in inurement or impermissible private benefit or in an excess benefit transaction.

STATE-SPECIFIC NOTES

SOURCES AND REFERENCES

• IRS, "Form 1023: Purpose of Conflict of Interest Policy," https://www.irs.gov/charities-non-profits/form-1023-purpose-of-conflict-of-interest-policy
• IRS Form 1023 Instructions, Appendix A — Sample Conflict of Interest Policy
• IRS, "Governance and Related Topics — 501(c)(3) Organizations," https://www.irs.gov/pub/irs-tege/governance_practices.pdf
• Treasury Regulation § 53.4958-6
• Internal Revenue Code § 4958