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A free, editable conflict of interest policy template for US nonprofits and Canadian registered charities, paired with a US + Canada compliance guide. The template is a fillable skeleton; this page is the guide that explains how to use it.
This template is for you if you’re a:
- Board chair, secretary, or governance committee member at a US or Canadian nonprofit
- Executive director adopting or refreshing your organization’s COI policy
- New 501(c)(3) preparing IRS Form 1023 or improving your Form 990 Part VI answers
- Canadian registered charity working toward Imagine Canada accreditation or preparing for a CRA audit
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What is a conflict of interest policy?
A written governance document that tells board members and senior staff when to raise their hand, what to say, when to leave the room, and how the remaining directors decide. The IRS sample policy in Appendix A to the Form 1023 instructions frames the purpose as protecting “the tax-exempt organization’s interest when contemplating entering into a transaction or arrangement that might benefit the private interest of an officer or director.” That purpose maps cleanly onto Canadian registered charities, where the duty to avoid private benefit is a core CRA expectation.
Actual, potential, and perceived conflicts
Every well-drafted policy distinguishes three categories of conflict:
- Actual conflict. The interested person’s financial or personal interest directly conflicts with a current decision before the board. Full disclosure plus recusal from the discussion and vote is required.
- Potential conflict. The interested person has an interest that could conflict if circumstances change or the matter proceeds. Disclosure is required; the remaining directors determine whether recusal is needed.
- Perceived conflict (or duality of interest). An outside observer might reasonably question whether the director could be impartial, even if no financial gain is at stake. A common example is serving on two nonprofit boards that compete for the same funding. Disclosure is required and the board makes a judgment call on the specific matter.
The IRS sample policy notes that “a financial interest is not necessarily a conflict of interest.” Disclosure happens first; the board then decides whether the disclosed interest actually creates a conflict on the matter at hand. That two-step process is the standard approach in both US and Canadian law. See also: how boards can model organizational ethics.
Who must be covered by the policy?
Statutes set the floor at directors and officers. Best practice reaches further, to everyone with authority to influence material decisions plus the family members and related entities whose interests can flow back to them.
- Directors and trustees. Always covered, in every jurisdiction.
- Officers. Board chair, secretary, treasurer, and any other officer named in the bylaws.
- Key employees. Any staff member with authority to make or recommend material financial decisions, typically those approving transactions above a stated threshold like $10,000 or $25,000. The IRS Form 990 asks specifically about “officers, directors, trustees, and key employees.”
- Committee members with board-delegated authority. Audit, finance, compensation, governance, and any other committee whose decisions bind the organization.
- Major contractors and consultants. When a contractor has material decision authority (interim CFO, fundraising agency with discretionary spending), they should sign the policy on the same terms as a key employee.
- Family members and related entities. The interests of a covered person’s spouse, domestic partner, parents, children, siblings, in-laws, household members, and entities they control all flow through. Define “family member” broadly in the policy itself.
The Imagine Canada Standards Program goes further than any statute and requires COI policies to cover board, staff, and volunteers. For organizations seeking that accreditation, the policy’s covered-person definition needs to reach all three groups.
Is a conflict of interest policy legally required?
It depends on where you’re incorporated and what filings or accreditations you pursue. Whether your statute mandates one or not, every nonprofit should have one. Its absence is publicly visible on the Form 990 and is frequently raised by donors, funders, regulators, and auditors.
United States
No federal statute requires a 501(c)(3) to adopt a written COI policy, but the IRS publishes a sample policy in Appendix A to the Form 1023 instructions and treats it as the de facto baseline. Several other federal and state pressures push every nonprofit toward a written policy:
- IRS Form 1023: Adoption is not required to obtain tax-exempt status, but the application asks about your policy and the IRS sample is widely understood as the floor.
- IRS Form 990 Part VI: Three lines (12a, 12b, 12c) publicly disclose whether you have a policy, whether annual disclosures are required, and how you monitor conflicts. A “no” answer is visible to anyone who pulls your return.
- Intermediate sanctions: The IRS rules on excess benefit transactions impose excise taxes on disqualified persons and on managers who knowingly approve. A working COI policy is the primary mechanism for establishing the “rebuttable presumption of reasonableness” that protects the organization.
- Private foundations: The IRS self-dealing rules are stricter than the public charity framework, and they effectively prohibit most transactions between a private foundation and a disqualified person.
- New York: The N-PCL explicitly requires every NY-incorporated nonprofit to adopt a written COI policy with specific minimum content.
- California: No statute mandates a written policy, but the Attorney General’s office expects one, and California Corp Code provides a safe harbor for interested-director transactions that a written policy operationalizes.
- Texas, Delaware, Illinois, Massachusetts, Pennsylvania: No general statutory mandate, but state grant rules, AG guidance, and the Form PC filing in Massachusetts create functional requirements.
Canada
No CRA statute or regulation mandates a written COI policy for registered charities, but CRA audit practice treats one as the standard evidence of private-benefit controls, and federal and provincial corporate statutes impose mandatory disclosure and voting obligations that a written policy is the natural mechanism to operationalize.
- CRA Charities Directorate: No statute, but the audit process examines governance controls for preventing private benefit. A written COI policy is the standard documentation.
- Federal (CNCA): Directors and officers must disclose interests in material contracts or transactions, and may not vote on the resolution to approve them, with narrow exceptions for remuneration, indemnity or insurance, and affiliate transactions.
- Ontario (ONCA): Stricter than the federal standard. The interested director must leave the meeting entirely during discussion and the vote, not just abstain.
- British Columbia (Societies Act): Disclosure required when a director “knows or reasonably ought to know” of a material interest, and the rules extend to senior managers, not just directors.
- Alberta: The Societies Act and Companies Act are less prescriptive on COI procedures. Best-practice convention applies, ideally tracking the CNCA or ONCA standard as a floor.
- Quebec: Directors of OBNLs must disclose at the next board meeting after becoming aware of a conflict and cannot participate in discussion or vote on the matter.
- Imagine Canada Standards Program: Accreditation requires a written COI policy covering board, staff, and volunteers. This is the broadest formal requirement in the Canadian nonprofit sector.
What to include in your conflict of interest policy
A well-drafted policy has nine sections.
1. Purpose statement
A short paragraph explaining why the policy exists: to protect the organization’s interests in transactions with a covered person, prevent private benefit (charities) or excess benefit (501(c)(3)s), and supplement, not replace, applicable law. Reference the IRS intermediate sanctions framework for US 501(c)(3)s, the duty to avoid private benefit for Canadian charities, and the stricter IRS self-dealing rules for private foundations.
2. Definitions
Five terms anchor the policy. Define them up front:
- Interested Person: Any director, principal officer, committee member with board-delegated powers, or key employee who has a direct or indirect financial interest.
- Financial Interest: Includes ownership or investment interest in any entity transacting with the organization; a compensation arrangement with the organization or with any entity the organization transacts with; and any potential ownership or compensation arrangement with an entity the organization is negotiating with.
- Related Party: A person or entity with a close relationship to the organization, including directors, officers, key persons, and their family members and related entities. For US 501(c)(3)s the definition aligns with the IRS “disqualified person” framework.
- Family Member: Spouse or domestic partner; parents and grandparents; children and grandchildren; siblings; in-laws (parents, children, and siblings of a spouse or partner); any household member. Avoid gender-specific or marital-status assumptions.
- Compensation: Direct and indirect remuneration, as well as gifts or favors that are not insubstantial.
3. Disclosure procedures
Use both annual and transactional disclosure. Annual disclosure is a standing declaration each covered person signs on appointment and yearly thereafter, listing every entity, position, compensation arrangement, and anticipated transaction in which they may have an interest. Transactional disclosure is event-driven and required whenever a specific matter arises mid-year. Require covered persons to update their annual disclosure within 30 days of any material change, and to disclose immediately at any meeting where a relevant matter is on the agenda. Signed statements go to the board chair, audit committee chair, or designated compliance officer.
4. Recusal and voting
This is the most jurisdictionally variable section. The conservative approach satisfies every standard: the interested person discloses, presents factual background if asked, leaves the room before deliberation and the vote, and does not vote. Where their absence would otherwise break quorum, the policy should specify that the remaining disinterested directors constitute a quorum for that vote. Rules by jurisdiction:
United States
- IRS sample policy: The interested person leaves the meeting after making any presentation, before discussion and the vote. The sample is silent on whether they count in quorum.
- New York (N-PCL): The interested person must not be present at or participate in deliberation or the vote, and cannot attempt to improperly influence the deliberation or vote.
- California: Corp Code provides a safe harbor for interested-director transactions approved by the board without the interested director’s vote, after disclosure.
- Delaware (DGCL): Interested directors may be counted in quorum for the meeting that authorizes the transaction. The safe harbor requires disclosure plus disinterested director or shareholder approval, or fairness to the corporation.
- MBCA states (~30): Use a defined “qualified director” concept. Safe harbor requires approval by a majority of qualified directors with notice to all directors that a conflicting interest exists.
Canada
- Federal (CNCA): Directors must disclose and cannot vote on the resolution to approve. The statute does not explicitly require physical departure from the meeting.
- Ontario (ONCA): Stricter. The interested director must not attend any part of the meeting where the contract or matter is discussed, and the remaining directors are deemed to constitute quorum for the vote.
- British Columbia (Societies Act): The director must leave the meeting when the matter is discussed and when other directors vote, with one narrow exception. A conflicted director may remain to provide information if asked by another director.
- For-profit equivalents: The CBCA mirrors the CNCA approach. The OBCA and BC Business Corporations Act follow the same departure-from-meeting rule as ONCA and the BC Societies Act.
For boards operating across borders, or in multiple provinces, apply the stricter standard as the default. See also: quorum for board meetings.
5. Independent review
Once the interested person leaves, the disinterested directors investigate alternatives, gather comparable data (market surveys for compensation, competitive bids for contracts), and determine whether the organization could obtain a better arrangement elsewhere. If not, they vote on whether the proposed transaction is in the organization’s best interest and fair and reasonable. This documentation is what establishes the IRS rebuttable presumption of reasonableness on 501(c)(3) related-party transactions.
6. Documentation in the minutes
Every meeting where a conflict is addressed, the minutes must record who disclosed, the nature of the interest, the board’s determination, who was present for the discussion and the vote, the alternatives considered, and the vote count. See also: board meeting minutes template.
7. Annual statements
Each covered person signs an annual statement affirming they have read the policy, agree to comply, and have disclosed all current actual and potential conflicts. New York’s N-PCL mandates the annual statement; the IRS sample policy and Imagine Canada accreditation both require it as well.
8. Handling violations
If the board has reasonable cause to believe a covered person failed to disclose, the policy should give them a chance to explain, then determine whether a violation occurred and take action. Consequences range from written reprimand to mandatory recusal from future matters, removal from a committee, termination, or a recommendation to the membership for removal of a director. Where the safe harbor was not met, the organization may also void or rescind the conflicted transaction; courts in both countries can set contracts aside and require accounting for profits.
9. Periodic reviews
The full board or governance committee should review the policy and its operation at least annually. Legal counsel or a governance consultant should review every three to five years, or whenever relevant law changes.
Still chasing annual COI disclosures over email?
Sending the same disclosure form to twenty directors, chasing missing signatures, and stitching the responses into a board pack is a job nobody wants. Aprio Board Portal lets you distribute annual COI disclosures, collect e-signatures, and lock a complete audit trail in one place, without a single email attachment.
How to handle a disclosed conflict in a board meeting
Eight steps that satisfy the strictest US and Canadian standards.
Open the agenda item with a standard question
The chair asks: “Does anyone have a conflict of interest or potential conflict regarding this agenda item?” Asking the question routinely, on every relevant item, builds the habit and creates a record that the board considered the question. See also: board meeting agenda template.
The interested person discloses
The interested person verbally discloses the nature and extent of their interest. The secretary records the disclosure in the meeting record. If asked, the interested person may present factual background information about the matter, but should not advocate for a particular outcome.
The remaining directors determine whether a conflict exists
The chair asks the remaining disinterested directors to determine whether the disclosed interest creates a conflict on the specific matter. The interested person does not participate in this determination. A financial interest alone is not always a conflict; the board makes the judgment.
If a conflict is found, the interested person leaves
The interested person leaves the meeting room, including any virtual meeting breakout, before deliberation begins. They remain available to answer factual questions if specifically asked. For video meetings, this typically means being moved to a waiting room or asked to drop off the call; the fact of departure should be noted in the minutes.
The remaining directors conduct an independent review
The disinterested directors consider whether a more advantageous arrangement is available from an unrelated party, examine comparable data, and explore alternatives. The depth of this review should match the materiality of the transaction.
The disinterested directors vote
A majority of the disinterested directors must approve the transaction for it to proceed. The vote is recorded in the minutes. Where the absence of the interested director would otherwise leave the board without a quorum, the policy should provide that the remaining disinterested directors constitute a quorum for the specific vote.
The interested person rejoins
After the vote, the interested person may re-enter the meeting and resume normal participation.
The secretary records the full record in the minutes
The minutes must show who disclosed, the nature of the interest, that the interested person left the room during deliberation and the vote, the alternatives considered, the vote result, and who was present and voted. This documentation is what supports the IRS rebuttable presumption of reasonableness and what a CRA auditor or state Attorney General will look for if the transaction is later challenged.
The annual disclosure cycle
The standing process that runs alongside in-meeting handling, usually anchored to the fiscal year-end or annual board meeting.
| Step | Who | When |
|---|---|---|
| Distribute annual disclosure forms | Secretary or compliance officer | 30 days before fiscal year-end or annual meeting |
| Complete and return signed disclosure | Each covered person | Within 30 days of receipt |
| Review disclosures and flag conflicts | Audit committee chair or board chair | Within 30 days of receipt |
| Board acknowledges review | Full board | At a regular or annual meeting |
| File disclosures in corporate records | Secretary or compliance officer | Immediately after collection |
| Report on Form 990 or T3010 | Finance staff or accountant | At the filing deadline |
| Mid-year update | Each covered person | Within 30 days of any material change |
Record the board’s acknowledgment in the minutes, even if no conflicts were identified. A clean annual disclosure pattern is itself the evidence an IRS, CRA, or AG inquiry will look for later.
Electronic signatures and record-keeping
E-signed COI disclosures are generally valid in both countries. The platform should authenticate the signer, timestamp the signature, link it to the document version, and store the record in a retrievable format.
United States
The federal ESIGN Act and state-level UETA (adopted by 49 states, DC, and most territories) confirm that electronic signatures have the same legal effect as wet-ink signatures for most documents. New York uses its own Electronic Signatures and Records Act in place of UETA, with the same general effect.
For COI disclosures and acknowledgments specifically, an e-signature with an adequate audit trail (timestamp, IP address, signer identity, document version) provides the evidence that any IRS, state AG, or auditor inquiry will look for. Maintain a PDF or electronic record of each signed form alongside the board’s other governance records.
Canada
Provincial Electronic Commerce Acts in Ontario, BC, Alberta, and the equivalent legislation in Quebec confirm that a document is not denied legal effect solely because the signature is in electronic form. PIPEDA addresses electronic signatures at the federal level for specific listed provisions.
Quebec adds a stricter standard for evidence-grade documents: the integrity of the document must be ensured and the link between the signature and the document must be established at the time of signing and maintained since. For most annual COI disclosures, a standard e-signature platform meets the test. For sworn statements or affidavits (rare in COI practice but possible in litigation), wet-ink or notarized signatures may still be required.
Retention periods
Keep COI records longer than you think you need to.
- Signed annual disclosures: Retain permanently alongside board minutes.
- Minutes of meetings where conflicts were addressed: Retain permanently, as part of the board minute book.
- Transactional disclosure records: Retain at least seven years after the transaction.
- Annual disclosures showing no conflict: Retain at least seven years.
- Related-party transaction documentation (comparability data, approvals): Retain at least seven years after the transaction.
Access controls
Disclosure forms contain sensitive personal financial information. Limit access to the board chair, audit committee chair, compliance officer, legal counsel, and external auditors, and document the controls alongside the retention policy. See also: board portal security.
Common mistakes boards make with COI policies
Five patterns explain most COI failures we see in nonprofit governance reviews. Each is easy to avoid with the right policy language. See also: board member term limits.
| The mistake | Why it fails | How to fix it |
|---|---|---|
| Copying the IRS sample policy without state or provincial customization | The IRS sample is a floor, not a ceiling. It does not require the interested person to leave the room before discussion begins, does not define “key employee,” and does not address Canadian law, healthcare-specific rules, or electronic signatures. New York, Ontario, and BC each require more. | Start with the IRS sample, then layer in jurisdiction-specific provisions, broader coverage, and modern practice elements. If you operate across borders or multiple provinces, use the strictest standard as your default. |
| Covering only directors and ignoring key staff | Form 990 line 12b asks about officers, directors, trustees, and key employees. The IRS rebuttable presumption applies to “disqualified persons,” which includes officers and highly compensated employees. The Imagine Canada standards require coverage of board, staff, and volunteers. | Define “Covered Person” broadly in the policy itself. Include anyone with authority over material financial decisions, regardless of title. |
| Treating the annual acknowledgment as the only required disclosure | Annual disclosures capture standing relationships at a point in time. New conflicts arise mid-year. The CNCA, the ONCA, and the IRS framework all anticipate transactional disclosure on top of the annual cycle. | Include both annual and transactional disclosure requirements. Require covered persons to update their disclosure within 30 days of any material change. |
| Failing to document alternatives or comparability data | The IRS rebuttable presumption of reasonableness requires the approving body to have obtained and relied on comparability data before making its determination. Boards that approve transactions without contemporaneous documentation cannot later claim the presumption. | Build the comparability requirement into the policy’s procedures. The independent committee should document what comparisons were sought, what data was obtained, and the basis for concluding the transaction was at fair market value. |
| Letting the conflicted director stay in the room during deliberation | Even if they don’t vote, their presence violates New York, Ontario, and BC standards and creates the appearance of influence. Courts have questioned decisions made under these circumstances. | Require physical or virtual departure before deliberation begins. For video calls, the interested person should be moved to a waiting room or asked to drop off, and the minutes should note that fact. |
One place for every COI disclosure, signature, and audit trail
Aprio Board Portal lets you send annual COI disclosures, route them for e-signature, and lock a complete audit trail that satisfies ESIGN, UETA, and PIPEDA requirements. Role-based access keeps disclosures confidential, every action is logged for your next audit, and the board’s full COI record sits next to its minutes and resolutions, ready for an IRS, CRA, or AG inquiry.
Frequently asked questions
Why is a conflict of interest policy important?
It turns the fiduciary duty of loyalty into a repeatable process: protects the organization from regulatory exposure (US intermediate sanctions, CRA private benefit findings), protects directors from personal liability, signals good governance to donors, and creates the evidentiary record any auditor or regulator will look for if a transaction is later challenged.
What’s the difference between disclosure and recusal?
Disclosure means revealing the interest. Recusal means withdrawing from deliberation and the vote. Disclosure happens first; the board then decides whether a conflict exists and recusal is required.
Can a conflicted director be counted in quorum?
Depends on the jurisdiction. Delaware and the CNCA allow it; New York’s N-PCL, the ONCA, and the BC Societies Act exclude the interested person and deem the remaining directors a quorum for that vote. The conservative template approach is to apply the stricter rule everywhere.
Can a conflicted director vote?
No. Every statute reviewed (CNCA, ONCA, BC Societies Act, CBCA, OBCA, NY N-PCL, IRS sample policy) prohibits voting on the matter giving rise to the conflict. Narrow exceptions cover the director’s own remuneration, indemnity or insurance, and specifically carved-out affiliate transactions.
What happens if a director fails to disclose a conflict?
In the US, an excess benefit transaction without proper COI process triggers a 25% excise tax on the disqualified person (200% if not corrected) and 10% on managers who knowingly approved. In Canada, the CNCA and ONCA let courts set aside the contract and require accounting for profits. Undisclosed conflicts can also be grounds for removal from the board.
Do small nonprofits need a conflict of interest policy?
Yes, arguably more than large ones. Small boards often include the founder and close associates, exactly the configuration most likely to produce undisclosed conflicts. The IRS intermediate sanctions rules apply equally to small and large organizations.
How does a conflict of interest policy differ from a code of ethics?
A code of ethics is broader, covering integrity, confidentiality, fair dealing, and use of organizational assets. A COI policy is narrower and procedural, governing disclosure, recusal, and documentation. Many organizations adopt both. For US listed companies, NYSE and Nasdaq listing rules require a code of conduct that includes COI provisions; the standalone COI policy carries the detailed procedures.
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