Why Nonprofits Need Corporate Structuring to Avoid Self-Dealing

When people think about corporate structuring, they often picture large for-profit companies with shareholders, subsidiaries, and complex tax considerations. But in reality, nonprofits need corporate structuring just as much—if not more.

Without a clear structure, nonprofits run the risk of blurred lines between board members, staff, and beneficiaries. This creates fertile ground for self-dealing—when individuals in positions of power benefit personally from the organization’s resources.

Not only does this erode trust, but it can also jeopardize the nonprofit’s tax-exempt status.

What Is Self-Dealing?

Self-dealing occurs when insiders—like board members, officers, or key employees—use the nonprofit’s assets for personal gain. Examples include:

• A board member steering contracts to their own company.

• Excessive compensation packages.

• Loans between the nonprofit and insiders.

• Personal use of nonprofit property.

The IRS watches these activities closely. Even an appearance of self-dealing can put your nonprofit’s reputation at risk.

How Corporate Structuring Helps

Corporate structuring isn’t just about flowcharts and bylaws—it’s about creating guardrails for accountability.

1. Defined Roles & Responsibilities - Clearly separating the duties of the board, management, and staff reduces overlap and conflicts of interest.

2. Conflict of Interest Policies - A strong structure enforces policies requiring disclosure of relationships and recusal from votes that could benefit insiders.

3. Independent Oversight - Structuring ensures enough independent directors are in place to evaluate compensation, contracts, and major decisions.

4. Entity Segregation - For nonprofits running side businesses, setting up separate legal entities (LLCs or subsidiaries) helps protect the nonprofit from tax and compliance pitfalls.

Protecting the Mission

At the heart of every nonprofit is its mission. Strong corporate structuring ensures that resources are used to advance that mission—not personal interests. It creates transparency, reassures donors, and builds long-term sustainability.

At Nexus Tax & Business Advisory, we help nonprofits design structures that align with IRS rules, protect against self-dealing, and give boards the tools they need to govern with integrity.

Because at the end of the day, good governance isn’t just compliance—it’s stewardship.

Take the Next Step

If your nonprofit is ready to strengthen its governance and protect against self-dealing, schedule a consultation with Nexus today. Together, we’ll build a structure that safeguards your mission, inspires donor confidence, and ensures long-term success.