Perks for Board Members?

Recently, one of our Spokes member organizations inquired about the legality of providing a “perk” to board members. In this particular instance, the perk would be free tuition to an educational program run by the nonprofit. I had some concerns about such a practice. With the help of ChatGPT, I did some research and my concerns were confirmed. Here’s how I responded:

Providing a tuition discount to board members whose children are enrolled in your program is not automatically prohibited, but it raises several important legal and governance concerns that should be carefully considered.

First, under California law, a director who receives a material financial benefit from the organization may be classified as an “interested person.” If multiple board members utilize the discount, this could risk exceeding the rule that no more than 49% of the board may be composed of interested persons.

Second, while this type of discount would not be considered compensation, it does represent a financial benefit tied to board service. The Internal Revenue Service generally prohibits private inurement and limits private benefit in 501(c)(3) organizations. A benefit available only to board members—rather than based on need, employment, or program criteria—may raise concerns in this area.

Third, offering such a benefit introduces ongoing conflict of interest considerations. Board members receiving the discount would have a personal financial interest in decisions related to tuition, enrollment, and program policies, requiring disclosure and recusal. This can complicate governance and affect public trust.

Finally, there is an equity consideration. A tuition discount would only benefit board members with age-eligible children, creating an uneven “perk” structure that may affect board culture and recruitment.

Best Practice Recommendation
Most nonprofits avoid providing financial benefits tied to board service. Instead, they maintain board roles as strictly voluntary and uncompensated. If tuition assistance is offered, it is typically structured based on objective criteria such as financial need or made broadly available to program participants, not linked to governance roles.

Conclusion
While the proposed policy may be legally permissible if carefully structured, it carries sufficient legal, ethical, and practical concerns that it is generally not recommended as a best practice.