Nonprofit Bylaws 101

That’s why we welcome you to Nonprofit Bylaws 101. In this brief crash course, we’ll cover all the essentials of bylaws for your nonprofit corporation.

Why Bylaws Matter

Bylaws are vital to any successful nonprofit corporation for a number of reasons.

For one, bylaws are a legal requirement — even though you don’t have to file them with your Secretary of State, you must adopt them within your organization. Furthermore, the IRS often requires that a nonprofit has bylaws adopted before granting tax-exempt status.

Bylaws also have immense practical value, because they act as a guidebook or roadmap for your nonprofit. If a disagreement ever arises among your members, your bylaws can help settle it.

You do not have to make your bylaws publicly available, but it’s an option to consider. This is especially significant if your organization will rely heavily on donations. Giving your donors access to your bylaws keeps them informed, and keeps you accountable to your mission and goals.

What Your Bylaws Should Include

Your bylaws prescribe the policies for how your organization will operate. While we can’t cover every section in detail, we do want to provide you with a summary of each common aspect.

General information about the organization

It may seem fairly obvious, but your bylaws should include some basic information about your nonprofit, including your business name and the location of the organization. If you have any additional locations, you could list all of them, or merely your headquarters.

Statement of purpose

Your bylaws ought to include a statement of your nonprofit’s mission and goals. When you first start out, these goals will be at the forefront of your mind, but as time passes and members come and go, that mission can get lost in the shuffle.

Defining your mission in your bylaws sets everything down in writing, so if and/or when your organization strays off course, your bylaws can help set you straight. As time passes, your goals could change and adapt — if they do, you should amend your bylaws accordingly.

Leadership of your nonprofit

A nonprofit is only as good as its leadership, but the leadership of a corporation (whether for-profit or not) is a bit more complicated than simply naming a boss and moving on. You’ll have to establish your board of directors and any officers you need, but the process doesn’t stop there.

You should also define how many directors your nonprofit will have, how long their terms are, and the process for changing directors for any reason.

Meeting guidelines and voting procedures

On a similar note, your bylaws should prescribe the process for the meetings of your board of directors. This includes establishing the number of times they’ll meet per year, along with where and when these meetings will occur.

Another vital part is establishing your voting procedures. For example, you should define how many members must be present for a quorum, as well as how many votes are necessary for an initiative to pass. Armed with these leadership policies, your nonprofit will be set for success.

Conflict of interest policy

Every nonprofit should have a conflict of interest policy within their bylaws. The decisions of the board members or officers cannot result in something that conflicts with the nonprofit’s cause. This includes excess benefit transactions or the private benefit of a director or officer.

Your policy should include the procedures for regulating and judging cases when the policy is violated. Conflicts of interest in any business are bad, but it’s especially unfortunate in a nonprofit corporation, because the public holds high standards for charitable organizations, and rightfully so.

That’s why it’s important for your policy to clearly dictate the consequences of violating it.

Provisions for committees

Many times, the board of directors of a corporation chooses to set up committees to tackle a specific challenge.

For example, one committee might handle the finances, and another may handle human resources. Each nonprofit will have unique needs for committees — some will need many of them, while others will only need a few.

Your bylaws should define whether or not your corporation will have committees, how many it can have at a time, and when (if ever) a committee will dissolve.

Language for 501(c)(3) status

First, we should clarify one thing: not all nonprofits are eligible to receive tax-exempt status, or 501(c)(3) designation. But those nonprofit corporations which do intend to apply for tax-exempt status should include the necessary language within their bylaws.

Here’s why: as part of your application, the IRS will look for specific words and phrases to prove that your nonprofit is truly eligible for the status. For example, if you’re a charity that brings housing to the homeless, the wording in your bylaws should prove that you exist for that goal alone.

For more information and the IRS’s suggestions for the language you need to include, look here.

Explanation of dissolution process

It’s never fun to discuss the possibility of someday shutting down your organization, but it’s a conversation that you need to have. In fact, in most states, having a dissolution clause is a legal requirement for a nonprofit corporation.

In your dissolution clause, you’ll need to describe how your organization will distribute its assets in case you need to dissolve your nonprofit.

Furthermore, you need to make sure those distributions are legally allowable for a nonprofit, and do not jeopardize your tax-exempt status. This usually means stating that your organization’s assets are to be distributed in other charitable ways if your nonprofit dissolves.

Specific rules for your organization’s needs

No two nonprofits are exactly alike, and while the above components are necessary for most nonprofits, it’s by no means a comprehensive list. Each nonprofit corporation can make additional provisions in their bylaws as needed.

For example, you may choose to include a section on establishing mutually beneficial partnerships with like-minded nonprofits in your area. If these alliances are a key component of your day-to-day affairs, it may be helpful to add it into your bylaws.

Provisions to change your bylaws

The bylaws are a roadmap for the nonprofit, but they should not be an unchanging map. Just as Google Maps or Waze redirects when a delay appears on your route, the nonprofit itself can and should adapt as time passes.

Occasionally, you’ll need to change your bylaws to reflect that evolution.

If your bylaws do not change in accordance with your nonprofit’s actual identity, you’ll find that they’re worth very little to you. You always want your bylaws to fit with the current state of your organization.

That’s why it’s important for you to include a process for changing your bylaws — you want to define this process before you need to make any changes. A clear-cut process prevents you from making any spur-of-the-moment changes to the bylaws. The bylaws should be just flexible enough to change with relative ease, but not so flexible that you’re constantly altering them.

How to Draft Your Bylaws

To be honest, drafting your bylaws can be a complicated, time-consuming process, but it also holds prime importance. There are several ways to draft your bylaws — the easiest way is to download a template from an online business formation service.

You can also hire a corporate lawyer to assist with the process, which is the most reliable way to draft comprehensive bylaws, although it’s also the most expensive route.

Of course, you are allowed to draft the bylaws as an organization. If you do, you should ensure that the group chosen to draft the bylaws represents the key subgroups of your organization. This will ensure that you address all necessary categories for the bylaws.

Regardless of how you choose to draft your bylaws, they must be written in accordance with the state’s laws for nonprofits. You can familiarize yourself with the laws by reading your state’s nonprofit corporation act (or similar statute).

Conclusion

Congratulations, you’ve now passed Nonprofit Bylaws 101! Armed with this information, you’re ready to create the perfect bylaws for your nonprofit corporation.

In turn, those bylaws will empower you to further the cause you believe in.

Our main overarching point regarding nonprofit bylaws is that you need to take great care when drafting them. This is not a step to be taken lightly, or done without the utmost attention to detail. If you’re not comfortable handling this process, you could look into hiring a business attorney to draft them on your behalf.