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Governance policy

Nonprofit conflict-of-interest policy

A conflict policy helps directors and officers identify when personal interests could interfere with duties to the nonprofit. The value is not the template alone—it is the disclosure, recusal, review, and documentation process.

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What the policy should define

  • Who is covered.
  • Direct and indirect financial interests.
  • Family and business relationships.
  • Disclosure duties.
  • How the board determines whether a conflict exists.
  • Recusal from discussion and voting.
  • Review of alternatives and fair-market information.
  • Minutes documenting the process and decision.
  • Annual acknowledgments and disclosures.
  • Consequences for failing to disclose.

How to handle a related-party decision

  1. The interested person discloses all material facts before the decision.
  2. Disinterested directors determine whether a conflict exists.
  3. The interested person leaves the decision-making portion when required.
  4. The board considers alternatives and reliable comparability information.
  5. Disinterested directors vote based on the nonprofit’s best interests.
  6. The minutes record the disclosure, departure, information reviewed, vote, and result.

Examples

Common conflicts include hiring a founder’s relative, leasing space from a director, buying services from a board member’s company, setting founder compensation, awarding a grant to an affiliated organization, or reimbursing expenses without documentation.

A signed policy does not cure a bad transaction. The organization must actually follow the review and documentation procedure every time a potential conflict occurs.
Service boundary: Start Your Cause generates customizable templates and educational guidance. We do not submit filings or government fees to a state agency or the IRS. Review current agency instructions before filing.

Frequently asked questions

Is a conflict-of-interest policy required?

Requirements vary, but conflict procedures are a core governance practice and the Form 1023 process asks about conflicts. Review current federal and state requirements.

Should every director sign annually?

Annual acknowledgments and disclosures are a common practice because relationships and financial interests can change.

Can a nonprofit transact with a board member?

Possibly, but the transaction requires careful legal and tax review, full disclosure, disinterested approval, fair terms, and documentation.

Does recusal mean leaving the room?

The governing documents and applicable rules control. Strong practice often includes leaving deliberation and voting after providing requested factual information.

Related nonprofit startup resources

Start a Nonprofit in Illinois →Illinois Articles of Incorporation →Illinois Nonprofit Bylaws →1023 vs. 1023-EZ Screener →Nonprofit Startup Cost →Board Requirements →

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Use the guided Start Your Cause questionnaire to prepare formation templates, governance documents, and a state-specific next-step checklist.

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