Nonprofit bylaws govern the internal operations of the organization. Too many nonprofits make the mistake of ignoring their bylaws. In reality, the bylaws don’t matter until there is a dispute. Once a dispute arises, the nonprofit bylaws are the center of everyone’s attention. Do your nonprofit a favor and focus on the nonprofit’s bylaws now before your board is in crisis. In reviewing your bylaws, focus on the following:
1. Purpose and Powers
If the corporation wants to gain tax-exempt status, its purpose must be carefully articulated in its Articles of Incorporation. Restating the purpose in the bylaws is redundant. Further, it is likely to lead to internal conflicts if one document is amended and a corresponding amendment is not made to the other document.
Further, the bylaws typically do not need to recite all of the Board’s powers as they are typically included in the state statute. Instead, a brief statement that the board has the power to oversee the management of the corporation is sufficient.
2. Track State Statutes.
Organizations that don’t have bylaws will find that the state provides default bylaws in the form of nonprofit corporation statutes. State law specifies the rules that apply when the articles and bylaws are silent. In some cases, but not all, the statutory default rules can be overridden by the nonprofit’s bylaws.
It’s important to ensure that the nonprofit’s bylaws mesh with state law and do not include provisions that are not permissible under state law. Further, it is wise to track the language of the statute closely and, if possible, consult legal counsel.
3. Replace Jargon with Plain English.
Consider whether your bylaws make sense to the board members and staff implementing them. Look for jargon terms and replace them with plain language where possible. Overuse of herein and whereas is jargon.
However, realize that legal terminology may be unavoidable or even helpful in some cases, particularly when it tracks statutory language. In such cases, include the statutory language but consider adding a plain language explanation.
4. Strike Redundant Language.
It is not uncommon for bylaws to be full of redundant language. General statements that the organization will follow the law will comply with its articles and bylaws, will not support terrorism, etc. are examples of language we find to be redundant.
5. Avoid Internal Inconsistencies.
Review the bylaws to ensure consistency. It’s not uncommon to find conflicts within the document. For example, a requirement to provide 6 days’ notice to hold a special meeting in one section, and a requirement to provide 10 days’ notice in another section, is an internal inconsistency that can lead to disputes.
6. Consider Style, Format, and Organization.
Consistently styled and formatted documents are easier to read. Breaking up large blocks of text into smaller, numbered and titled sub-paragraphs makes it easier to quickly locate and digest information.
Placing the most important information at the beginning and grouping like topics together also helps the reader find what they are looking for without it feeling like a chore. Other techniques to make bylaws more readable is to limit their length and avoid passive voice.
7. Build-in Flexibility.
It’s a good idea to omit hard and fast deadlines in nonprofit bylaws where possible. Also, avoid high voting thresholds where they aren’t required.
Particularly for new organizations, a rigid structure of meeting dates, odd quorum and voting requirements, and notice provisions are more likely to promote inadvertent bylaw violations than good governance. If greater specificity or higher voting thresholds are desired down the road, they can always be added once the organization has some operational experience under its belt.
8. Carefully Consider Control Provisions.
It is imperative to clarify who exercises ultimate authority over the organization. Is the organization ultimately run by the Board or are there voting members that have the power to appoint and remove board members? Are there third parties with approval or veto rights? Similarly, carefully consider provisions related to the following:
- Term limits. Fixed terms for Board members can help to revitalize some organizations but in others, they may limit continuity and institutional knowledge.
- Members. Ambiguous references to members can raise questions whether there are members with statutory rights to appoint and remove Board members.
- Supermajorities. If it is desirable to limit the Board’s ability to make certain changes, the use of a supermajority (more than a simple 51% majority) will require greater consensus for the Board to take action.
- Appointment, removal, and replacement of Board members. Does the Board select its own replacements or are Board members appointed by members or another third party?
9. Use Committee Charters.
Shorten bylaws by allowing committees to be formed and abolished by a board resolution and function pursuant to board-approved committee charters. This approach has the benefit of shortening the bylaws and reducing the number of necessary amendments since committees tend to change frequently.
10. Review Notice Requirements.
Are they reasonable? Do they state when notice is effective under various delivery methods? Do they reference outdated modes of communication? Do they address the ability to waive notice in the event the Board needs to have an emergency meeting?
11. Strike Roberts Rules.
Roberts Rules were designed for legislatures, not nonprofit boards. Most nonprofits don’t really use them beyond calling for a motion and a second when adopting resolutions. In reality, Roberts Rules is a thick book of picayune rules that very few people have a firm grasp of. Rather than settling disputes, they more often create them. We recommend omitting references to Roberts Rules.
12. Consider Removal of Directors and Officers.
In our experience, by the time a majority of the Board wants to remove another director or an officer, the situation is really bad. Unless required by state law, provisions that give directors and officers the ability to have special notice, a hearing, be represented by a lawyer, etc. will only make the process more painful.
The better approach is to permit a majority of the Board (or Members) to remove directors and officers without cause.
13. Address Technology.
Many nonprofits find it useful for notices to be sent by email and for consents and other documents to be approved by e-mail or signed electronically where permitted by state law. Many nonprofits also find it helpful to hold meetings by telephone or video conference. These options should be addressed in the Bylaws and should comply with state law.
14. Periodically Review to Ensure Bylaws Match Actual Practice.
The bylaws should be thoroughly reviewed no less than every three years to ensure they continue to reflect current law and organizational practice. Ideally, the task of reviewing the bylaws should be delegated to a committee so that sufficient time and attention can be devoted to the task.
15. Notify IRS.
Significant changes to a tax-exempt nonprofit’s articles and bylaws must be reported to the IRS on Form 990. In some circumstances, such as a name change, the organization may want to notify the IRS earlier by requesting an affirmation letter reflecting the new name.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.