Bylaws are one of an agency’s most essential yet least understood documents. Along with the Mission, Vision and Values statements, bylaws describe the basic foundation for the entire agency. They define the agency’s purpose and crucial elements of its operation.
Every state requires Nonprofit Bylaws. While the composition of these documents can vary from state to state, in many ways they are very similar cross-country.
Whether you are starting a new nonprofit or leading a long-standing one, it is important to know what is in your bylaws and to follow them as closely as possible. Violations of the bylaws can have serious consequences. Remember, these documents are your agency’s promise of how you will operate to the public and all federal, state, and local governing bodies.
If you have questions about the content and construction of Nonprofit bylaws, you are not alone. I thought I would briefly review what a set of bylaws might look like. This is a generic template (not state specific).
While I can educate my audience on general guidelines for Nonprofit Bylaws, I cannot offer legal advice. You are encouraged to speak with a competent nonprofit attorney for specifics.
Introductory Section – This section covers general information about the agency. It sets the stage for more specific information found in subsequent sections.
Name – The official name of the agency is identified here.
Purpose and nonprofit status – All nonprofit agencies must clearly declare their nonprofit purpose.
Dissolution Clause – Having tax-exempt status, an organization must include a property dissolution clause if their state does not already address distribution of assets in the event of dissolution.
Operational Prohibitions – This provision outlines certain disallowed uses of funds. For example, payments to officers cu’s purpose are generally prohibited, and for directors – the payment of dividends.
Location of Principle Office – This is the address where the agency primarily conducts business. While there may be several branches, offices or international divisions, an agency must decide on one location to declare as its primary office.
Members (if applicable) – Agencies must declare how its board is filled. Boards may be filled by an organization’s membership (like trade associations), by members of association casting votes or by the board having its own procedures for replacing directors.
Board of Directors – This section contains all information about how the board will be comprised, how it will operate, and carry out its duties.
General, overall powers to set policy, rules – This section gives the board certain powers to set policy, establish rules, etc. It usually has a great deal of detail, leaving little guesswork.
The election of directors – This section describes the process to be followed when electing directors, since there are many ways it can be done.
Duties of Directors – Nonprofit Bylaws will contain a detailed listing of a director’s duties and responsibilities
Qualifications of directors – Bylaws will generally describe the qualifications and characteristics a desirable board candidate will demonstrate. Knowledge of agency mission, vision, values and a commitment to its cause are common desired qualities.
Number– Bylaws will describe the minimum and maximum number of authorized directors the scan that can serve at any one time.
How elected – Bylaws describe the process the board must follow to elect its officers. It includes how candidates are identified, by whom, and whether voting/acceptance is by majority vote, plurality vote, etc.
Length of board service term – Most bylaws contain limitations on how long a director may serve. This may be length of a term, number of consecutive terms, etc.
Filling Vacancies– Occasionally, board vacancies must be filled. This provision describes how to fill those vacancies.
Resignation– For any variety of reasons, a director may decide or need to resign from the board. This section describes how that should be done.
Compensation– Directors cannot receive compensation for their service. This provision reinforces that fact.
Removal– Unfortunately, directors may have to be removed. This provision outlines a process to accomplish that.
Meetings – A successful board acts in unison. Therefore, its meetings are critical. This provision covers frequency, location, approved manner of voting ( i.e. electronic, fax, online) for meetings. It also defines a quorum for regular, annual, and special meetings. It also will usually authorize attendance by video conference call or phone call.
Minutes – This section empowers the agency’s Secretary to take and maintain all official documents on the agency to include foundational documents, procedures, minutes, etc.
Voting – Each director is authorized to cast one vote.
Officers – Every organization must have a set of officers responsible for running the agency. This section identifies them, explains their roles, and outlines how their positions are filled.
Officers and Duties – Here, each officer role is identified and their specific duties are summarized.
Appointment/Election of Officers – There are several ways officer positions are filled. This section describes which one the agency will use. It may include a provision, where appropriate, for the appointment of officers in the case of a vacancy.
Removal/Resignation– On rare occasions, a board may determine it is in the best interest of the agency to remove an officer from his/her role. This provision outlines this process. It also describes the process a board member would follow should he/she decide to step off of the board voluntarily.
Term Length and Limitations– Most boards limit a director’s service to 2, 3, or 4 years. They may allow a director to serve a limited number of consecutive terms before being required to step of off the board.
Committees- Effective boards know how to use their board committees to get things done. This section lists and describes the purview of each official standing committees of the board.
Purpose of each committee– Each committee is charged with a specific area of responsibility. This is clearly described in its purpose. Responsibilities of two or more committees should never overlap, though on occasion more than one committee have a valid role in decision-making, depending on the topic. In that case, the board chair needs to set clear boundaries and expectations for each committee.
Ability to appoint other committees – For specific projects, the board may decide to temporarily create an ad hoc committee. This provision gives the board that authority. Again, these committees need clear direction from the board on purpose, etc. Eventually, these committees are dissolved, unlike standing committees.
Meetings and actions of committees – Bylaws usually describe the frequency a committee meets and the span, or limitations, of its own authority. In most cases, a committee’s role is to work on issues or projects the board assigns to it: fundraising events, marketing/communication efforts, etc. Sometimes, a committee’s charge is to delve into and investigate an issue. The committee periodically updates the board on its work and then makes recommendations, as appropriate, to the full board.
Composition, Responsibilities, Limitations – Bylaws often state how committees are staffed, how a committee chair is named, and the role members play. Limitations on committee authority may be listed as well.
Fiscal matters- Board members have very specific duties and legal responsibilities when it comes to agency finances. This section outlines the expectations placed on a board.
Annual Statements and Audits – Boards are required to prepare annual reports using GAAP Rules. Additionally, most agencies must have annual audits.
Financial Controls, Check-Signing – Financial controls are paramount in any organization. They must be both installed and closely followed.
Indemnification, Standards of Conduct/Codes of Ethics – An agency will agree to indemnify directors for litigation and costs incurred when they are acting within their role as a director. An agency may determine it prudent to state how it expects its board, staff, etc to conduct themselves. They do so by listing its expectations as a Standard of Conduct or Code of Ethics document.
Fiscal Year– Here the agency lists the beginning and end of its fiscal year.
General Provisions- In this section, the agency lists provisions that widely apply to everyone in every role.
Standard of Care– This provision typically states that directors will always act in the best interest of the agency.
Conflict of Interest– Board members (and others) must use care to avoid possible conflicts of interests. In situations where one may surface, it is the involved person’s responsibility to describe it so the board can determine how to proceed.
Record Maintenance and Retention – Boards must ensure that all legally required documents and records are maintained, protected, and stored safely.
Execution of Corporate Documents – Periodically, legal and other documents must be executed on behalf of the agency. This provision describe who has the authority to sign such documents. These may include leases, tax returns, banking documents, contracts, etc.
Amendments and Revisions – Occasionally, bylaws will need to be revised to reflect current law and regulations or to address changes the board deems appropriate for the betterment of the agency’s operations. This provision describes the process to change the bylaws.
If you are thinking about starting up a new agency or if you and your board are in the process of updating your current bylaws, use this list to think through the important concepts your attorney will be asking you to consider.