What are Nonprofit Bylaws?
Nonprofit organizations are governed by an official set of rules called bylaws. Nonprofit bylaws outline any state requirements for the nonprofit, as well as how the organization (and by extension, the people who run it) will operate on a high level. Bylaws are adopted when the nonprofit is established, and they act as the pillar that upholds the organization—every nonprofit must adhere to their unique bylaws.
Bylaws are essential because they determine how decisions are made, conflicts are resolved, and risks to the nonprofit are avoided. When it comes to legal concerns, it’s your bylaws that have the final word.
Failure to follow your nonprofit’s bylaws can result in a number of both logistical and legal consequences that open the door to liability. We’ll discuss this further when exploring common mistakes later in this article.
What Should My Bylaws Include?
Bylaws should eliminate guesswork, and effective nonprofit leaders refer to them often so they can be followed closely and consistently. On the most basic level, your bylaws should be able to answer practical questions such as:
How will the board of directors be structured?
Making sure board expectations are established is a tried and true way to avoid board conflict. Your bylaws are where people can find rules on how directors and officers are elected, how they can vote, what their roles are, how long of a term they can serve, etc. You may also want language surrounding how often the board will meet, if and how board members can be compensated, what indemnification looks like, and other similar details. And you’ll certainly want to include provisions for how to remove a board member. Pay attention to this language, as your bylaws play a significant role in your nonprofit’s governance and reducing nonprofit board liability.
How do you handle conflicts of interest?
A conflict of interest is when an individual’s duty to serve the nonprofit’s charitable mission is in conflict with their own interests. Many nonprofits will include their conflict of interest policy in their bylaws, especially if they have or want to file for 501c3 status. The IRS also offers more detail on conflict of interest policies, which you can review here.
If applicable, how do members fit into the organization?
Many people think a “member” is a person who is involved with your nonprofit in some capacity, whether they’re a volunteer, a donor to a certain program, or they’re an advocate. But the term “member” has a legal definition in this case. A member, in the legal sense, is a person who has some sort of voting rights that are built into the corporate documents (usually the bylaws). Social Clubs (also known as 501(c)(7) organizations), churches, chambers of commerce, and professional associations often have members. Most other types of nonprofits often do not have members. You can read more about what members are, as well as the pros and cons of having them, here.
What will happen when the organization needs to dissolve?
In the event your nonprofit needs to close, whether it’s because you’ve accomplished your mission or for a number of other reasons, it’s good to have a general plan of action in your bylaws. For example, what needs to happen for the board to agree to close? How can assets be distributed?
What if the nonprofit’s bylaws need to be amended in the future?
You’ll want to review your bylaws every few years or so to make sure they still make sense for your organization’s present reality. It’s best to ask a professional to do so, and keep in mind that not all attorneys are well-versed in nonprofit law. If you’d like a nonprofit attorney to review and revise your bylaws, this is something we assist with regularly. Let us know if you’re looking for help.
As you consider what to add or subtract from your bylaws, here are some final points to consider. Think ahead to cover “what if” scenarios. What if a last-minute board meeting needs to be held in the event of an emergency or special circumstance? What if a board member passes unexpectedly and they have all the organization’s account passwords?
Especially since the COVID-19 pandemic, more and more organizations are going digital, so will your bylaws make provisions for the board of directors meeting via video conference? Can they vote via email? Think ahead so you can prepare for anything, both for best and worst case scenarios.
Common Mistakes with Nonprofit Bylaws
One of the most common mistakes nonprofits make when writing their bylaws is making guidelines too specific. You’ll want your bylaws to contain high-level, fundamental information about how your organization runs—not details that are subject to change like paid leave policies, how programs are operated, or grant application guidelines. Your bylaws are the framework by which you can make other policy documents, so don’t limit yourself or future board members to granular rules.
A similar mistake is making the nonprofit’s rules too difficult to follow in real-world scenarios. For example, being able to amend your bylaws if needed is an important ability, so make sure you have guidelines that are easy to abide by. If your bylaws require 90% of the board to agree when voting on an amendment, how likely is it that you’ll come to an agreement? If you already expect to ignore certain provisions, leave them out altogether.
You’ll also want to make sure that your bylaws do not contradict language or requirements in your other corporate documents, such as your articles of incorporation or policy handbooks. Make sure there’s consistency across the board for best compliance practices and to avoid any governance confusion.
Finally, one of the biggest mistakes nonprofits make is treating bylaws as if they were optional, or letting them get so outdated that no one follows them anymore. Your bylaws are legally binding—so treat them as such. Failure to comply with your bylaws can result in issues ranging from organizational conflict to personal liability, the rejection or loss of tax-exempt status, and in some cases, lawsuits. You wouldn’t want your nonprofit to suffer setbacks due to problems that could have been avoided if the bylaws were followed.
Your bylaws are meant to be helpful and should be leveraged to support your mission, not to hinder it. The closer you follow your bylaws in the real world, the sooner you’ll notice if certain clauses in your bylaws have become outdated, cumbersome, or irrelevant.
Don’t forget that we’re here to help if you’d like assistance with your bylaws, whether you’re drafting them for the first time or want them reviewed and revised. Having strong bylaws is important, and we believe that time and effort spent on improving them makes all the difference in making sure your mission is carried out effectively.