Nonprofit organizations are required to have bylaws. There are known standards for bylaws, however there are also areas of confusion in what must be included, should be included, or could be included in individual bylaws for organizations. Some of this confusion lies in different state laws for bylaws, outdated understanding of bylaws and application of individual organization needs included in bylaws. Here, I clear up some of the confusion in Nonprofit Bylaws and how to ensure your bylaws are appropriate and working well for you.
- NONPROFIT ARTICLES OF INCORPORATION ARE NOT BYLAWS
Nonprofit Articles of Incorporation are the legal definition of what defines a nonprofit organization. There are 5 Clauses that make up a Nonprofit organization:
- A) Charitable Purpose
- B) Dissolution
- C) Limited Liability
- D) Board Innurement
- E) Legislative Lobbying
Also included in the Articles is the name, location and Incorporator(s) of the organization.
All of these clauses are written in generic, legal language and are unchangeable. They are what nonprofits need to follow to be operating under state and IRS laws. The IRS requires that your articles must include the Charitable Purpose and the Dissolution clauses and they also recognize the other clauses as requirements for how nonprofits are to run and operate.
Nonprofit Board of Directors should know and understand these unchangeable clauses for a nonprofit corporation. These Articles of Incorporation will be reviewed if the organization is ever audited.
- BYLAWS TELL A BOARD HOW TO RUN AND OPERATE
Bylaws are different from Articles of Incorporation because they provide the guidelines for how the Board of Directors is to run and operate. There is some differing thought on how much of the Articles of Incorporation should be included in the bylaws, however my professional opinion is you don’t need to include any of the clauses from the Articles of Incorporation in your bylaws. It is repetitive and creates very long bylaws that is not necessary. Merely referencing the Articles of Incorporation in the bylaws (“The organization has filed Articles of Incorporation with the State” or “The organization has Nonprofit Articles of Incorporation.”) and that the board follows those articles can be enough to meet the requirements of board awareness of the Articles of Incorporation. This clearly distinguishes the difference between the Articles and the Bylaws and reduces confusion about the two different documents. This distinction now frees up the bylaws to concentrate on the operations of the Board of Directors.
- BYLAWS ARE CUSTOMIZED TO EACH INDIVIDUAL NONPROFIT ORGANIZATION
Nonprofit bylaws are specific to the organization and it is the responsibility of the Board of Directors to establish, sign and update their bylaws. While there are standards and guidelines for nonprofit bylaws, each organization can make changes within their bylaws to meet how their board will be operating. Bylaws are a governance document. They are different from policies in being less specific. (NOTE: Bylaws have to balance being specific enough to provide the necessary guidance for the board to operate and not too specific to make it impossible to follow the bylaws.) I do suggest that a clause in the bylaws be included for policies to be developed and followed by the organization. I share more on this in my blog on policies. Bylaws should be reviewed and updated annually. As a matter of fact, some organization create a Bylaws and Policies Committee that meets monthly to review and make recommendations for any changes. Any changes must be approved by the Board of Directors and this approval is usually by a 2/3rd majority of the board which a higher standard than the common 50% quorum for most votes.
- THE PURPOSE CLAUSE IS THE MISSION STATEMENT
The purpose clause in the bylaws is required. Many nonprofit organizations confuse the standard legal Charitable Purpose clause in the Articles of Incorporation with the Bylaws Charitable Purpose Clause. The Bylaws Charitable Purpose is the specific mission of the organization. It is also a good idea to include the vision statement of the organization in this section as well. It is critical for the Board of Directors to follow the vision and mission of their nonprofit organization. The IRS requires that nonprofit organizations deliver on their mission and the board should be making decisions about the programming of the organization based on the mission statement. By including the mission and vision statements in the Bylaws it is clear what this organization is about and does in the community it serves and ensures the board is always keeping this mind in their decision making.
- MEMBERSHIPS ARE NOT DONORS
The IRS has very distinct definitions for membership organizations. Although 501c3 membership organizations do exist, the IRS has become stricter on their definition of membership organization and these organizations typically fall under 501c4, 501c6 and 501c7 organizations. There are different rules for different tax-exempt organizations and before a 501c3 nonprofit states they are a membership organization, they should understand these differing requirements and ensure they are an approved membership-based organization before identifying themselves as such.
- INCLUDE THE THREE TYPES OF MEETINGS
There are 3 kinds of meetings that should be outlined in your bylaws.
Annual meetings usually include voting on the new board of directors. Annual meetings may be open to anyone interested in the organization. Often annual meetings are used to share the organization’s annual report including what happened the previous year and what will happen in the coming year.
Regular meetings are usually held quarterly or monthly. It is common for new nonprofit organization to meet more often, however, it is up to the organization to list how many meetings they will have each year. It is important to understand that whatever you put into the bylaws you must do. You can always add meetings as a special meeting if needed or have a committee that meets more often.
Special meetings are held for a very specific reason. If you have a vote that needs to happen in between the regular meetings you can call a special meeting. I suggest you allow for 24-48 hour notice for such a meeting as these are urgent meetings that require immediate responsiveness. You will need enough time to arrange a meeting and not too much time that the needs of the organization can’t be met. Also, these meetings are restricted in what can be discussed to just the immediate matter at hand, unless the whole board votes for a change to the agenda. NOTE: It is best practice to not hold email meetings. Voice votes are necessary and the in-person and verbal interaction of discussion is important for proper decision making by the directors.
- VOTING BY VOICE
There is a best practice standard that all votes be verbal and recorded by the secretary in writing. This means that meetings should be held in person or by audio or video conferencing so everyone can simultaneously participate. This allows for discussion, directors changing their minds and appropriate sharing of their thoughts on the issues at hand. Email voting is not a best practice. Attorneys I’ve spoken with believe email voting could be challenged in the courts invalidating the votes.
- Board of Directors and Officers
Bylaws identify the makeup of the board of directors and the roles and duties of the directors and officers. Directors are voting members of the board. All officers are directors. Board officer titles include Chairperson, President, Vice President, Secretary and Treasurer. Some boards have 2nd Chairperson, 2nd Vice Presidents, Co-Chairs or other titles. States have different rules for the makeup of the board, whether the board can hold paid positions, and even duties. The IRS suggests a minimum of three directors on the board with a President, Secretary and Treasurer. It is a good practice to list a range of directors on the board, like 3-11 directors may serve on the board. This allows for changes on the board in case you want to increase the number of directors on the board or if there are directors dropping off the board (keeping in mind that whatever you have in your bylaws you must do). Carefully review the duties of the officers and directors, keeping in mind that there are generic activities that each board needs to have as duties, but also that the officers and directors will be doing the activities listed in your bylaws.
Here are some best practices of what NOT to have on your board:
- Family or business-related people on the board to avoid conflicts of interests.
- Paid staff including the founder/Executive Director or any other director that is being paid for services to the organization. This avoids Conflicts of Interests, meeting Compensation policy requirements, and avoiding Board Inurement where members of the board benefit financially from the organization, which is not allowed in nonprofit organizations. NOTE: The Executive Director serves at the pleasure of the board.
Some organizations have Advisory Boards. The Advisory Board does not vote on the overall organization like the board, but they do advise on the Board of Directors. The Board of Directors sets the duties of the Advisory Board. The Advisory Board can set up their meetings and even will have officers, but the Advisory Board serves at the pleasure of the board.
- Policies are separate, but recognized
The actual language of policies do not need to be in the bylaws. Your Conflict of Interest policy or Compensation policy do not need to be detailed in your bylaws, however, your standard policies should be listed as a separate article and that you will follow these policies. There are 6 specific policies that the IRS recognizes organizations should have and I talk about them in my policies blog. I’ll just quickly list them here:
- Conflict of Interest
- Documentation Retention and Destruction
- Gift Acceptance
- Committees are important in your bylaws
Organizations survive on the activity of volunteers. Most organizations have committees that cover all kinds of aspects of the organization to accomplish the tasks. Even if the organization doesn’t formally acknowledge a committee, meetings to plan an event or develop programs are committees.
A few standard operations committees include:
- Executive Committee (made up of the officers of the board),
- Financial Committee
- Bylaws and Policies
- Other Ad-Hoc Committees might be:
- Event Committee
- Fundraising Committee
- Grant Writing Committee
- Program (list your program) Committee
Remember that if you put a committee in your bylaws, they must meet. This provides structure for your organization and can be important, but for new organizations may be difficult to manage. As the organization grows, the bylaws can be changed to include committees that you can commit to meeting regularly.
Bylaws are required and necessary. They are critical to the proper operations of the Board of Directors and therefore the Governance of the organization. There are standards for language and certain inclusions in the bylaws and they are customizable to your board’s needs and abilities.