The nonprofit sector greatly benefits different fields of society and strives to make the world a better place. However, before you start a nonprofit corporation, you need to create bylaws. In fact, bylaws are a requirement in most states for nonprofits to incorporate.
Nonprofit bylaws are necessary to increase the level of transparency, accountability, and effectiveness in nonprofit corporations. It includes all the best practices and guidelines to help nonprofit organizations foster excellence and adhere to the applicable state laws. They act as a roadmap or guidebook to help your organization stay on the right course and focus on your goals and mission.
It also makes it possible for your organization to get a 501(c)(3) tax exemption from the IRS. Furthermore, making your bylaws public can help your nonprofit corporation get donations more easily.
However, drafting this important document is not easy and it requires the utmost attention to detail. In this article, we will look at a detailed guideline of what should be included in nonprofit bylaws. We will also cover different ways of drafting nonprofit bylaws to help you get started.
What to Include in Nonprofit Bylaws?
Basically, there is no universal standard for creating nonprofit bylaws. This is because every corporation is different and has unique needs and requirements. Nonetheless, below are some of the common provisions for nonprofit bylaws.
Information About the Organization
Bylaws should provide general information about your organization. This may include things such as the business name, location, your headquarters, and any other useful information.
You should include the leadership and governing structure of your nonprofit corporation. There are two ways of setting up the governing structure in a non-profit organization. It can be structured with members who elect the board of directors, who are then tasked with selecting officers. Alternatively, it can be governed with a board of directors, with members who don’t have voting rights or no members at all.
The bylaws should clearly state the minimum and a maximum number of the members of the board of directors, the process for electing or appointing them, how long they can serve and how they can be removed. It should also state the same for corporate officers and whether there will be members and their rights.
Statement of Purpose
You should clearly define your corporation’s missions and goals in your bylaws. This helps to run your nonprofit corporation in line with the set goals and missions. It also helps when we stray off course due to various reasons like members changing over time.
Your goals could change over time due to one reason or another. When this happens, you should revise your bylaws and change them accordingly.
Meeting Guidelines and Voting Procedures
Nonprofit bylaws should state the frequency and quorum of meetings. It should prescribe the number of times the board of directors should meet annually when the meetings will occur, and the quorum needed to make decisions.
For instance, the bylaws can state that one-third of the board members constitute a quorum. Hence, if there are thirty board members, then official decisions will only be made with 10 or more board members present. You also check with your state’s rules and regulations since most states specify the minimum requirement for a quorum.
The other thing that you need to specify is the voting procedures. Your bylaws should specify how many votes are needed for an initiative to pass. This section should also restate the stator requirements like notice requirements to ensure ease of reference. If your corporation has voting members, then you must spell out the voting rules that apply to members and directors.
Provision for Committees
A section of your nonprofit bylaws should include information about committees. It should state whether or not you will have committees, how many can be set up at a time, and when it should be dissolved.
In some instances, the board of directors in a corporation may choose to form committees to handle different issues, such as finance. The need and number of committees usually vary from one nonprofit corporation to another.
Conflict of Interest Policy
In order for your nonprofit organization to operate successfully with no conflict of interest, you need to have a conflict of interest policy. It helps to maintain the sanity of a nonprofit corporation since they are highly esteemed by the public. Additionally, a conflict-of-interest policy helps to avoid fiduciary duty breaches and problems with the IRS.
If you are operating a public charity or a 501(c)(3), then your board of directors should only consist of independent individuals. Also, the decisions made by board members or officers should not lead to a conflict of interest. By law, not more than half of the board should be related to each other either by blood, marriage, or business.
Your policy should indicate the disclosures that the board is needed to make before joining your organization. It should also outline the procedures for regulating and determining cases in case the policy is violated.
The provision for a conflict of interest can be in two ways. One, the conflict of interest can be spelled out in your nonprofit bylaws. The other way is by stating in the bylaws that this policy is to be established as a separate document.
Language for 501(c) (3) Status
Something else that your nonprofit bylaws must include is the language that affirms the prohibitions and requirements for nonprofit 501(c)(3) organization as spelled out by IRS. If your nonprofit corporation does not plan to apply for tax-exempt status, then it is important to include the language status in your bylaws.
Usually, the IRS looks for specific phrases and words to prove that the nonprofit corporation is eligible for the status.
An explanation for Dissolution of the Organization
Of course, no organization wants to talk about dissolving. Nonetheless, this section is important to include in your bylaws should an unfortunate situation cause you to dissolve your nonprofit corporation.
Whether your nonprofit should have a dissolution clause will depend on the type of organization and the state laws. In most states, it is a legal requirement for nonprofit corporations to have a dissolution clause.
The dissolution clause will outline how the funds that the organization has at hand will be handled in the event of a dissolution. It will describe how your nonprofit will distribute its assets legally, without risking your tax-exempt status. To ensure this, you will need to state that the assets will be distributed to other charitable purposes should you dissolve.
Provision for Amendment of the Bylaws
Nonprofit bylaws should provide provisions for changing them to complement the current state of your organization. Basically, your bylaws may change as your nonprofit corporation grows. Therefore, you should include a section for amending the bylaws when necessary. Besides, the process should be easy and straightforward.
One way to do this is to state that your bylaws are subject to amendment when necessary. You may also include information about the number of board of directors needed to approve an amendment of bylaws. Although the bylaws should be flexible enough to change, they should not be extremely flexible that you are constantly changing them.
How to Draft Nonprofit Bylaws
Truth be told, drafting bylaws can be a complicated and time-consuming process. Nonetheless, it is important to draft them for your nonprofit corporation. You can do this using several methods:
The other way is to hire the services of a corporate lawyer. Although using this method is expensive, it is one of the most effective for drafting bylaws. Since nonprofit bylaws are legally binding documents and are used to file for tax-exempt status, it is advisable to procure legal services to help you draft, review, and finalize the bylaws for your nonprofit. An attorney will make certain that your bylaws adhere to the state and federal regulations to avoid any legal issues and conflict of interest.
Another way is to draft the bylaws yourself. However, you need to ensure that you include all important sections that will address all essential categories. You should also make certain that you draft the bylaws in accordance with the state’s provision for nonprofits. Before you begin drafting, read and understand your state’s nonprofit laws.
It should also reflect the unique set of needs and requirements of your organization. The bylaws should be tailored to the purpose, culture, and goals of your organization. It should not be overly detailed and should make room for some flexibility.
Ultimately, bylaws are the foundation for your nonprofit corporation. While it is not easy to create them, they are very necessary for the success of any corporation. You should put a lot of attention and consideration when drafting bylaws.
Make sure that the bylaws you draft fit your state’s nonprofit laws and are tailored towards the unique needs of your organization. If you are not ready to create perfect bylaws for your corporation, do not hesitate to hire a business attorney to handle the entire process for you.