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Nonprofit Governance, Boards & Bylaws: Bylaws & Members

  1. Our organization is now reviewing its bylaws for the first time in fifteen years. I notice that we are supposed to have members, but under the bylaws it is not clear what their role is. In fact, for as long as I have been on the board, members have not played any role at all. Have we violated the law in some way? Do we have to have members?
  2. Our bylaws are dysfunctional. They contain a six-page list of things we can do while leaving out other activities we'd like to do. As just one example, we'd like to begin selling our publications and posters, but the bylaws don't authorize commercial activities. Getting our directors to agree to amend them is almost impossible. Can we undertake actions not included in the bylaws?
  3. Our bylaws are impenetrable. They're too long, confusing, and have very little to do with how our organization is actually run. I've always wondered if we run any risks for not following let along understanding the bylaws?
  1. Our organization is now reviewing its bylaws for the first time in fifteen years. I notice that we are supposed to have members, but under the bylaws it is not clear what their role is. In fact, for as long as I have been on the board, members have not played any role at all. Have we violated the law in some way? Do we have to have members?

    First, a word of general advice to others in similar situations: As your organization grows and changes, it is important to make sure that your bylaws accurately reflect the manner in which the organization operates. If you can not show that an action taken by the organization was duly authorized pursuant to the rules (bylaws) that the organization has established for itself, then lenders, creditors, litigants, or any other third parties who you deal with may dispute, or at least hesitate to accept, such action.

    As to the concept of "members", the term itself is the source of endless confusion for members of nonprofit organizations, board members, members of the public, and members of the legal profession. Essentially, the term is used in two ways. First, it describes what may be referred to as corporate members: those individuals who have some legal rights in the organization, usually the right to elect or approve a slate to the board of directors, and approve of major corporate changes.

    The other type of member is simply one who in return for a membership fee or other donation receives a benefit of some kind, usually a newsletter, use of the organization's facility, or preferred seating or admission. This type of member has no legal rights or legal standing in the organization.

    Part of the reason for the confusion is that many nonprofit statutes and bylaws simply copied for-profit corporate provisions, merely replacing the word "shareholder" with "member" without further defining the concept of membership in a nonprofit setting. In terms of establishing proper authority and accountability for the organization, as you might imagine, this practice has created some large voids.

    Many states while formerly requiring nonprofit organizations to have corporate members, ostensibly as a way to make organizations accountable to the public, no longer have such requirements. The first thing I would do, therefore, is to determine if your state statute is one of the few remaining that requires members. If your state does not require members, then you may eliminate the membership provision from your bylaws (and articles of incorporation). The old provisions should be replaced with a clear and unequivocal statement that the organization has no members.

    A frequent Catch 22: Under your current bylaws you may need the permission of the members to amend your bylaws. In that case, depending on your state law, you could either document carefully in your minutes that you in actuality have not had members for X number of years, or alternatively, you should notify appropriate state authorities (Attorney General, Secretary of State) that you have made every attempt to contact members to no avail.

    What if your state does require members and you do not wish to open up control of the organization to a large body? You may wish to adopt a bylaw provision that would make the board of directors the sole member of the organization. Although I have not yet heard of this arrangement being challenged, some state regulators may deem it to be an attempt to circumvent the membership requirement. Therefore, you should make sure it is acceptable in your state before amending your bylaws along these lines.

    (Please refer to the State-By-State tab in our Nonprofit Law Resource Library to link to your nonprofit statute. We would be glad to help you review the statute and your bylaws.)

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  2. Our bylaws are dysfunctional. They contain a six-page list of things we can do while leaving out other activities we'd like to do. As just one example, we'd like to begin selling our publications and posters, but the bylaws don't authorize commercial activities. Getting our directors to agree to amend them is almost impossible. Can we undertake actions not included in the bylaws?

    You may do anything permitted by law which is not prohibited by your Articles of Organization, bylaws, or other organizing documents and which in your good faith judgment is helpful to the organization.

    Older-fashioned bylaws such as yours commonly contain a lengthy recitation of permissible corporate activities. The problem with such bylaws is that it's impossible to list every type of human endeavor in one short document. An organization can find itself unable to discern whether a particular activity was omitted intentionally or unthinkingly.

    This problem commonly arises because, as mentioned above, nonprofit corporate bylaws are frequently adapted from older, for-profit bylaws. In many for-profit industries in the past, if an activity was not specifically included in the bylaws, it might be considered ultra vires , i.e., beyond the power of the corporation.

    Today, in the nonprofit sector the exact opposite is usually true: if an activity is not specifically included you can do it.

    Therefore, in structuring bylaws, it's usually best to broadly and concisely state the purposes of the organization and that it may do anything permitted by law in furtherance or relating to such purposes. If you do wish to prohibit a certain type of program, management, or fundraising activity, you can then add a specific bylaw restriction.

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  3. Our bylaws are impenetrable. They're too long, confusing, and have very little to do with how our organization is actually run. I've always wondered if we run any risks for not following let along understanding the bylaws?

    Bylaws should be user-friendly or, like yours, they will not be used. The problem there is, if they have not been followed and a legal, financial, or interpersonal problem arises the board splits into two factions or a lender refuses to extend credit, for example the organization can be sidetracked or even immobilized.

    Bylaws are written for a number of audiences, any one of which may be critical to your organization's operations. Together with Articles of Incorporation, bylaws demonstrate to IRS examiners and state regulators your agreement to conform to accepted nonprofit standards of operation.

    Bylaws, along with minutes of your board meetings, are also relied upon by other third parties (potential lenders, vendors, auditors) to show that corporate actions were properly taken. And, most importantly, bylaws are written for internal use: an owner's manual, if you will, to guide the organization in governing, administering, and organizing itself.

    If written without appreciation of these various functions, bylaws easily become useless or counterproductive documents. In addition, they are often clumsily adapted from outdated for-profit corporate bylaws without regard to the unique requirements of nonprofit administration and governance.

    Therefore, in clear and concise non-legalese, bylaws should:

    1. Set forth your purposes in broad and flexible terms.
    2. Describe the governing board (and membership, if any), its manner of perpetuation, officers, and administrative mechanisms.
    3. Satisfy IRS and state scrutiny by including language that mirrors Internal Revenue Code and state law provisions.
    4. Protect officers, directors, and others personally by including liability and indemnity provisions.
    5. Set forth a workable system for amending the bylaws.

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