What are Bylaws and why are they necessary?
Bylaws are the rules that govern the internal organization and functioning of a non-profit. They are the guidelines the organization’s members follow to resolve conflict and to make decisions on an organizational level. Without bylaws, members are running the risk of bringing all of their activities to a halt when they don’t agree on a particular expenditure, or on what activities the organizations will participate in, or on whether they want to remove someone from the organization. The bylaws are a necessary and important document and great care should be taken when drafting them.
If that’s not enough of a reason, bylaws are required by law. In most states, the nonprofit corporation law provides minimum standards and default procedures if the Articles and Bylaws are silent on many issues. In addition, provisions meant to supersede any statutory legal guidance must be included in the bylaws, if any variance from the laws are to be acceptable.
What are Bylaws required to include?
State law determines the specific requirements for the content of bylaws. Although the requirements tend to be generally similar, you will need to pay close attention to your state’s requirements.
What provisions do Bylaws typically include?
Typical bylaw provisions include the following:
- the non-profit’s purpose
- limitations on the liability of directors
- types of officers, their terms, powers and succession
- location of the principal office
- whether the corporation will have members and where power will be vested, with the members or the board
- the number of directors, how directors will be selected and how vacancies on the board will be filled, the length of their terms, any limits on consecutive terms, and how their terms will overlap with those of
- the conditions for the annual board meeting, the frequency of regular meetings, the process for calling unscheduled meetings, the process for providing meeting notice
- what a quorum will be, the number of directors needed to approve an action, how board actions can be ratified
- the existence of committees
- designation of responsibility for keeping and reviewing the corporate books and dispersing corporate funds
- amending the bylaws
- terms under which the corporation will be dissolved
- selection of committee members
What are some of the more important bylaw provisions?
- Quorum – the quorum is the minimum number of directors required to be present at a board meeting, in order for the organization to transact business. A quorum is required to ensure that any action the board takes is representative of entire board and not just an elite few. In the beginning, its best to make the quorum requirement low, then change the bylaws to increase the requirement, when it becomes necessary.
- Voting – while many boards can be run effectively by consensus, eventually they have to deal with issues that divide them. In those instances, having a provision in the bylaws that requires a majority vote would break any stalemate. Majority votes can be used for changing the bylaws, or membership requirements, or dues requirements.
- Selection of Officers – bylaws address positions for which officers would be needed, the manner in which they are selected by direct vote, nomination or some combination; the length of their terms; how they can be removed. These are all important for the smooth and efficient management of the organization, minimizing interruptions in functioning, when director changes are required.
- Executive Committees – many state laws authorize the formation of executive committees. The executive committee is made up of one or more directors who are usually appointed to the committee by the board. Usually, the executive committee has the all of the power and authority of the full board, with the exception of: filling board vacancies; adopting, amending or repealing the bylaws; and having powers inconsistent with the resolution passed by the board establishing it.
What are some drafting considerations?
You or someone in your organization can draft the bylaws, but you should have them reviewed by an attorney to ensure they comply fully with state law and accurately reflect the organization’s desires and is consistent with efficient operating procedures.
When drafting, try to avoid using aspirational terminology – provisions like “the Directors should consider …” are basically meaningless because they do not require any action. To avoid internal inconsistencies do not just use another organization’s form and make modifications to it that are not applied consistently throughout. Avoid using the passive tense. Avoid ambiguities – since the bylaws will be most useful in a time of conflict, they should be clear enough to reduce the likelihood of litigation.