We will discuss what a nonprofit organization’s bylaw is. We will define the following: nonprofit organization, bylaw, sections of nonprofit bylaws. Lastly, we’ll go over how to read bylaws for nonprofits and the common mistakes to avoid looking for.
A nonprofit is an organization that does not make a profit from its operations and must be operated solely for charitable purposes. The principal activity of most nonprofits includes providing services either directly or through their beneficiaries. Nonprofit organizations are generally formed to provide a public service or pursue an ideal cause.
What are Nonprofit Bylaws?
Nonprofit bylaws are the internal rules of an organization. Some states require nonprofit bylaws before an organization can receive legal authority to operate. These bylaws set out the duties and responsibilities of an organization’s board members, directors, officers, and committees.
What is the Purpose of Bylaws for Nonprofits?
Nonprofit bylaws outline the structural framework of an organization. They provide members with the rules and regulations governing their operations, clarifying the roles of the various parties involved in association activities. In addition to defining the structure of an organization, nonprofit bylaws set out internal processes for handling disputes among members and other matters.
Common mistakes to avoid:
- Do not use the term constitution for nonprofit bylaws.
- Do not forget to provide the name of the organization as well as its physical address in the bylaws.
- When describing how much time is needed for member or director meetings, be specific. Example: The Service Committee shall meet at least once a month during the first five months of the fiscal year and twice a month thereafter.
- Do not forget to include an expiration date in your bylaws. Example: A nonprofit organization may continue to exist until either dissolved or its Bylaws are amended as provided in Section 3 of the Articles.
- Do not forget to state that the bylaws are available for review upon request from members and other interested parties.
- When deciding which committees will serve the purposes of the organization, do not forget to include names, addresses, and phone numbers of the committee’s members who will also serve on said committees.
- Do not forget to state the name and address of the organization’s agent for service of process. Example: Following Section 9(c), the agent for service of process shall be:
Nonprofit Bylaws may also include the procedures for amending, dissolving, and revoking an organization. These procedures are essential to a nonprofit’s compliance with laws and regulations.
How to Read Nonprofit Bylaws:
To read nonprofit bylaws, examine Section 1(a) sections of your bylaws.
- Rule 1(a)1- This section should clearly state the name of your organization.
- Rule 1(a)2- The physical location of your organization should be in this section.
- Rule 1(a)3- The purpose of your organization is found in this section.
- Rule 1(b)- This section contains the name, title, and address of the agent responsible for the service of the process (listed in Section 9 – below).
- Rule 1(c)- Here are the rules for amending, dissolving, and revoking your organization.
- Rule 2- The purpose of this section is for members to be informed on how the bylaws may be amended or revoked. Note that a special meeting is necessary for an amendment to take effect.
- Rule 3- This section contains the conditions and restrictions in which a member may be removed from office and/or discipline investigation panel. Note that a special meeting is necessary as well.
- Rule 4- Also known as the “effective date” rule, this section states the effective date of the bylaws.
- Rule 5- This section is for definitions. It defines terms that may be used in your bylaws to make it easier for members to understand. Note that it must also be a part of your articles (see below).
- Rule 6- This section is for the existence of a charitable trust.
- Rule 7- This section is for a financial statement. It should contain all of the financial documents that reflect the performance of your organization.
- Rule 8- This section is for general information in regards to governing bodies. It contains information on who appoints/removes members and their duties, among other things.
- Rule 9- This section is for revoking, amending, and dissolving your organization. It also states the conditions and actions that must be met to dissolve your organization.
- Rule 10- This section is for the organization’s articles of incorporation and/or bylaws, if applicable.
Nonprofit Bylaws are easy to write down, but it is very difficult for a nonprofit corporation to enforce them. You must incorporate these rules with the necessary sections that will govern the members, officers, and committees of a nonprofit corporation for smooth operation.
Tips for working with nonprofit bylaws:
- Get help.
- Find a lawyer you can trust. Reference your bylaws thoroughly when selecting an attorney to draft a nonprofit governing document. Hire an attorney that specializes in nonprofit law and ensures your first draft reflects the intent of the bylaws, be it acts or rules
- Find a lawyer that is familiar with your state’s laws. Your attorney will ensure you have the best and most current structure and language for your nonprofit.
- A good nonprofit lawyer will review your bylaws to make sure they are in writing and answer any questions you have about them during the initial consultation and throughout the process.
- Make them public.
The public has a right to view your bylaws, and they must be posted on the organization’s website.
- Your attorney can advise you on how to create legally compliant bylaws and post them on the organization’s website. A lawyer will also provide advice for displaying those rules within the organization’s regular practices, procedures, and policies.
- Nonprofit rules should be posted in plain sight for all to see. This aids members in understanding their obligations as well as how the board of directors operates.
- A public document displaying the bylaws serves as the organization’s public statement of its purposes.
- Don’t include information that changes frequently.
- Review the bylaws and make any changes necessary.
- Consider creating a flowchart for your organization’s operations that details the roles and responsibilities of all key players. This document can help members navigate and follow the organization’s structure more easily.
- Keep your bylaws up to date by ensuring any changes are made in writing, signed by all parties listed on the document, and filed with the appropriate governing agency.
- You may wish to create a separate document for organizational rules that shows how an organization generally operates. This document should be kept up to date, and only lists internal policies as rules do not need to be displayed publicly.
- Tailor them.
- Drafting new bylaws requires more effort and time than other forms of organizational documents.
- Your attorney can help you draft a nonprofit document that reflects your organization’s mission and activities.
- Nonprofit bylaws must be created to reflect the goals, structure, and actions of your organization. In addition to defining legal duties, bylaws may make provisions for internal governance.
- Organizations with many members may wish to create separate bylaw sections for each membership type (e.g., board members, patrons).
- Consider using flowcharts to guide members through the organization’s daily operations.
- Include policies that address crucial issues such as the promotion of membership and charitable activities.
- Your attorney can also help you draft a bylaw that states clearly which party bears responsibility for paying certain expenses.
- Incorporate bylaws must be drafted by an attorney and filed within your state’s legal system.
- Know the difference between “shall” and “may”.
- These words mean different things in the context of nonprofit bylaws.
- The term “shall” is used to describe a mandatory provision.
- A “may” clause is used to describe an option.
- An example of a mandatory requirement: “The nonprofit organization may not compensate a director.”
- An example of an option: “A member may attend, but not vote, at meetings of the board in person.”
- Don’t be too ambitious.
- A few feasible bylaws goals include the following:
- Define membership requirements.
- Set a reasonable term of office.
- Create an orderly transition plan when new staff is appointed. Incorporated nonprofit organizations must file their bylaws with the appropriate regulatory agency in their state and maintain a copy of all or selected portions of these documents in their files.
- Review them regularly.
- Incorporated nonprofit organizations may need to amend bylaws from time to time.
- A well-drafted bylaws document will include a “how to amend” section and will be kept up-to-date by storing all amendments in writing, signed by all parties, and with the appropriate governing agency.
Essential contents of nonprofit bylaws:
Following are the essential contents of nonprofit bylaws:
- Name and purpose
The bylaws should include the name of the organization and state its purpose. The name cannot be misleading and should be distinctive and unique within your state. The goal must be in alignment with the organization’s mission statement.
- Election, roles, and terms of board members and officers
You have to choose the number of board members and key officers. There are two ways to elect a director: EITHER by the entire board or by the membership at large OR by a vote of the entire membership.
The terms of office for officers or directors should also be included in the bylaws.
- Membership issues (categories, responsibilities)
The following categories of membership should be included in the bylaws:
1. Regular members and
2. Associate members
B. Patron members
C. Life members and honorary life members
- The members should be able to attend the board meetings.
- The members should be entitled to vote at the annual meeting and be allowed to nominate candidates for membership.
- The members should have a right to attend and speak at executive board meetings. If there are any matters concerning which they have a special interest, they may participate in the discussion about them.
- Meeting guidelines (frequency, quorum)
The bylaws should specify the nature and frequency of meetings. The meeting calendar should be well defined, and this information should also be noted in a meeting schedule manual.
The quorum requirements for the general meeting are usually 50 percent, with a minimum of 2 members present. There are no limitations on the number of appointments a director may attend under a specific category of membership; however, there must be a minimum of one meeting per quarter (by February, June, September, and December) during which all members are allowed to participate.
- Board structure (size, standing committees, if any)
You need to specify the board member’s duties and responsibilities on a standing or ad hoc committee. The number of board members should be determined, and the responsibilities of these members must be included in their bylaws.
- Role of chief executive
The chief executive officer is responsible to the board. The chief executive officer has to submit his letter of resignation to the board on or before December 31 of each year. He also needs to dispose of any personal property he may own without involving the board at all.
The chief executive officer has to follow the organizational policies and ensure that they place the organization’s interest above their own. The chief executive officer should also make sure that all board members will receive the board packet at least 14 days before any meeting, and they should also send out all information about the meeting to each member electronically (especially for a large organization).
The chief executive officer may not make any decision where there is a conflict between their duties and the organization’s interests.
The chief executive officer has to submit a copy of this section to all board members, after it is adopted and distributed, 20 days before the next meeting of the board.
Their title must follow the signature of the chief executive officer on all documents.
- Conflict of interest policies
All individuals who hold an office in a nonprofit organization must have a conflict of interest policy statement. The statement should contain the organization’s conflicts of interest policy, the reporting process, and the individuals who are responsible for coordinating reports. The conflict of interest policy should be stated in writing and posted on the Internet.
- Amendment of bylaws
The amendment of bylaws should be processed in accordance with state laws regarding the amendment of corporate documents (e.g., Articles of incorporation). The board member’s signature on the paper and date should be added to state that they agree with all parts of the document.
- Dissolution of the organization
- If the organization is dissolved, the assets should be given to an eligible nonprofit organization and not to any individual.
- The board needs to resolve the issue of real property ownership before passing any resolution on the organization’s dissolution.
- Any available assets that are not used to wind up the affairs of the corporation shall be distributed to another similar entity.
- All un-notified creditors need to be paid before distributing any remaining assets among beneficiaries.
- The chief executive officer must prepare a wind-up report and send to the state secretary or the attorney general in some states within 90 days of dissolution.
- The board should consider executing a written agreement with an appropriate designated representative regarding the duties and responsibilities of each party before dissolving a nonprofit organization.
Nonprofit Bylaws – Pros and Cons
Nonprofit Bylaws have advantages and disadvantages. If you are looking for financial efficiency and complete management control of your organization, this is the best thing for you. However, if you plan to have a small board that will only meet one or two times annually and whose job is to govern the organization and see that everything works smoothly, then there is no need to have a bylaw in place.
The main advantage of nonprofit bylaws is that they are based on consensus.
- nonprofit bylaws are constructed on a consensus basis and are very beneficial for organizations where all members do not have equal power.
- Nonprofit bylaws can provide a neutral foundation and allow for the formation of committees to work on specific areas of expertise.
- They encourage strong strategic and operational planning skills, which is beneficial with the emergence of more complex environmental factors.
- A nonprofit organization that has been operating without Bylaws present may face operational issues when its members decide to adopt a bylaw document.
- The process and the content of the document may be very long, depending on the nature of the organization, which may not be beneficial for smaller organizations.
- There are strict requirements to ensure compliance with Bylaws. Non-compliance can lead to unpleasant situations.
Can there be a conflict between the articles of incorporation and bylaw?
Yes, there could be a conflict. The articles of incorporation should supersede any conflicting bylaw. However, this is something that should be taken into consideration while drafting bylaws.
What to do when nonprofit bylaws are not followed?
When the bylaws are not followed, the executive director could face the following consequences:
· Job termination
· Fines or penalties
· Criminal sanctions
What are ad hoc committees?
Ad hoc committees are formed to handle situations that arise, and once the situation is resolved, the committee is dissolved. They are also known as “standing committees” because they remain in effect until they are dissolved on their own accord.
Ad hoc committees have an advantage over permanent committees in regards to continuity. If a committee is dissolved after it has been established, it can often be difficult to re-establish the committee in a short time frame. On the other hand, if an ad hoc committee is formed and dissolved before all of its responsibilities have been carried out, there will be fewer issues, and there will not be any confusion about what should happen next.
What are stewardship committees?
Stewardship committees are also referred to as “task forces.” They are formed to review the organization’s operations and make decisions based on that review. Organizations can have stewardship committees in many different types of capacities, ranging from evaluation committees to audit committees.
The advantages of forming a stewardship committee include:
· Each member’s knowledge and experience can make informed decisions that will benefit the organization.
· The committee members will not have any conflicts of interest with other members of the organization, because there is no organizational hierarchy present.
· The organizational hierarchy will appear transparent, and it will be difficult to criticize the work of the committee because of these factors.
· The committee will not have any hidden agendas or actions, which could cause problems for the organization.
The disadvantages of reforming a stewardship committee include:
· There is always the possibility that people may feel that their independence will be compromised if they are placed on a committee responsible for making highly influential decisions.
· The members of the committee may feel that they are not being paid for the work that they are doing.
How to deal with difficult board relationships?
Board members should be aware of the differences between their roles as board members versus their roles as employees.
They also need to remember that everyone has a different style and approach and that sometimes it is better to just move on without making a scene or causing a confrontation.
It is important that the board members are educated about the critical issues and that they understand how to deal with those issues.
The board members will need to identify the likely issues so that they can determine how to raise them with other members of the organization.
As a part of this process, they should be able to articulate why it is important for people from different backgrounds, cultures, and experiences to feel comfortable in their roles as board members.
The bylaws for a nonprofit group are similar to the charter for a corporation or partnership. They set forth the rules that govern the relationship among members of an organization. Bylaws are like the corporate or partnership constitution because they establish internal procedures and policies.
Be sure to check with your state’s secretary of state office regarding your specific needs. Many states have online forms available for organizations that are seeking nonprofit status.
A for-profit is an organization that is formed to make money. The word ‘for’ means that the organization is formed to make money. A nonprofit organization is formed to achieve a social or charitable purpose, but it must operate solely on the donations of individuals or organizations, not on profit.
However, some nonprofits do have a for-profit division where certain services may be performed, such as accounting or advertising sales.
How often should a nonprofit review its bylaws?
The bylaws of a corporation should be reviewed annually. Although many organizations choose to review their bylaws on an annual basis, others choose to review them on a regular basis (such as twice per year or every three years).
Because of the importance of the bylaws, it is a good idea for all members of the board of directors to be advised if there will be any changes in the bylaws before they are adopted.
The bylaws are the heart and soul of the nonprofit organization. The money that it raises spends, and helps to grow goes directly into the coffers of the organization. It often comprises most of an organization’s intellectual property and is, therefore, a natural place for lawyers and accountants to come in, but it must be done properly. The heart and soul of any nonprofit organization are its bylaws.
By reviewing the meetings, you will be able to make sure that everyone in the organization has a role in the future of your organization. The more people who are involved, the more support it will have and the more likely it is to succeed.