The non-profit sector plays a crucial role in the economy and serves the public interest by working to address issues and challenges and strengthen communities. Individuals, foundations, and governments all invest resources in non-profit organizations to help amazing things happen. Nonprofits enrich lives and benefit society in all areas, including science, health, arts, culture, and civil rights.
Non-profit bylaws are a particular corporation with tax-exempt status; these tax-exempt organizations are necessary tools to increase effectiveness, transparency, and accountability, which helps foster trust and help inspire.
Various questions can be addressed by non-profit bylaws, including board meeting frequency and the process that should be followed to remove a board member. Today, we’ll break down the best practices so that you can understand the hallmark of a responsibly governed organization.
Bylaws explained
Non-profit bylaws, sometimes known as ‘Bylaws and Articles of Organization,’ are the governing documents belonging to a non-profit; they are crucial and govern the affairs of the corporation. As soon as an organization is established, bylaws will be set to supplement the core state codes to guide how a non-profit is run.
It’s crucial to remember that the applicable state legislation will override your non-profit bylaws, so you should ensure they are in complete compliance.
The bylaws will influence a non-profit Board’s actions and decisions; they can prevent conflicts (or at least resolve them). They also prevent potential issues by clearly outlining the authority structure, expectations, and rights. If the Board of Directors doesn’t follow the bylaws, the Board may be held liable for a duty breach.
Nonprofit bylaws tips and best practices
Every non-profit is different – a school’s charitable foundation will have a different structure than a charity for abuse victims, but there are some essential tips and best practices that all nonprofit corporations should follow, such as conflict of interest policies. Let’s take a look at a few.
Customize them
A religious organization will look different from an educational or cultural one. Bylaws are just the bare bones, determining only the very basics. Take care to flesh out your bylaws to match your organization’s goals and operational needs.
Get help
Remember that bylaws are a legal document, with legal requirements for what’s included. The precise requirements will vary depending on where you operate. Still, as a guide, some state laws govern membership, board selection, and other issues, requiring them to be addressed in the articles of incorporation. To ensure compliance with state law, you should amend your bylaws with a professional.
Remember to choose an attorney that is qualified and experienced in non-profit compliance.
Publish them
While it’s not required that you publish your bylaws, it does increase your organization’s legitimacy and accountability, ensuring the trust of supporters, beneficiaries, and donors.
Leave out information that changes regularly
You should leave out information subject to change, such as marketing guides, charters, and fundraisers. Policy manuals are more suited for this. Remember that schedule changes also happen, so it’s best to state that a board meeting shall be held monthly rather than at 4pm on every first Monday of the month.
Differentiate between ‘may’ and ‘shall ‘
You should only use the word ‘may’ when something is optional. ‘Shall’ is non-negotiable, this is a slight linguistic difference, but they mean very different things.
Be realistic
You shouldn’t be too ambitious, especially in terms of voting rights, don’t require approval of 2/3 of eligible members to vote if you can’t reliably get that many members to vote. It’s better to omit a rule than to try to enforce an unrealistic one.
Review them every two years
You should regularly review your bylaws to ensure that your organization’s structure is accurately reflected. If you’ve made significant changes in the authority or design, you may need to file a Form 990.
Checklist for non-profit bylaws
Before you complete your non-profit bylaws, you should work through this checklist to ensure you’re not missing anything. Specific provisions can make your life much easier further down the line.
Amendment of bylaws
You should consider how cumbersome it’ll be to amend your bylaws; if necessary, consider allowing a majority vote to amend a policy. A vote can take place at a meeting of the Board Members.
Dissolution
Non-profits should have a dissolution clause (unless otherwise permitted or specified in the law). You must usually determine that the assets belonging to the organization will be distributed for tax-exempt purposes. A charity’s dissolution might state that the assets will be given to other charitable organizations if the charity dissolves. State law will impact whether you’re required to have a dissolution clause or not.
Name and purpose
While the purpose is stated in the articles of incorporation, you don’t need to rehash it in the bylaws. To avoid deviation or confusion, you should restate it precisely if you decide to include a purpose section.
Roles, election, and terms of officers
Bylaws should clearly state all duties of the Members of the Board, including acting in the organization’s best interests and in good faith. The majority of non-profits will include a traditional structure with a President, Vice President, Treasurer, and Secretary. Describe the duties of each member of the structure and the qualifications and process for resignation and removal. You could specify that a majority vote may remove a Board Member or that resignations must be in writing only. You may also include term limits.
Membership
Members can be limited to only the Directors. Still, if you have members, you can list membership criteria, including member’s rights, termination of membership, eligibility, dues required, and other issues.
You should write sections that clarify meeting location and frequency, and notices of committee meetings should also be addressed.
Meeting guidelines
A quorum is the minimum number of members present to vote on crucial issues. Suppose an organization currently has 35 members, and the bylaws stipulate that one-third of the members constitute the necessary quorum. In that case, official decisions can only be made if 12 or more members are present. Just be aware that some states may specify the requirements for a quorum.
Board structure
You can specify the maximum and a minimum number of Directors and Board Members, though some states specify a maximum, minimum, or precise formula for working out these numbers.
This part should explain how emergency meetings work; you can also give the Board abilities such as creating committees and task forces rather than naming specified committees in advance.
Compensation (Indemnification)
In most cases, Board Members don’t hold personal liability; this is called indemnification. In some cases, non-profits are legally required to indemnify directors/officers, to protect and defend them from the risk of loss or harm. In other states, they may be unable to do so. You should outline compensation or indemnification protocol in your bylaws. Use the IRS Form 1023 to go through the language you can use for compensation arrangement approval.
Chief Executive role
The Board hires the Chief Executive, who will hold daily responsibility for the organization. Ensure that the Board committee’s authority to terminate the Executive Director is clear, including the number of votes required to implement it.
Conflicts of interest
Clauses and provisions dealing with conflicts of interest should be dealt with in the bylaws. You could include the conflict of interest guidelines in your bylaws. Otherwise, you should state in the bylaws that the policy is going to be developed in a separate document. For guidance, the IRS Form 1023 is invaluable.
The last word
Non-profit organizations provide funds and services for charitable purposes and receive tax-exempt status, including exemption from income tax. To set up a non-profit, you’ll need non-profit bylaws.
Before your bylaws can be used, the Board must approve them. The Secretary must attest to the signature provided by the President, or all Board Members must sign the bylaws. Drafting good bylaws requires careful attention; you should be precise and flexible. However, getting legal help is a good idea as this isn’t an area where you can afford to make mistakes.
Filed under: Advice Columns
