Nonprofit Bylaws and Their Unrecognized Importance to your Organization
Nonprofit Bylaws and Their Unrecognized Importance to your Organization
When it comes to starting your own nonprofit, one of the requirements in order for your organization to legally become a nonprofit is you'll need to file IRS Form 1023, 1023-EZ, or 1024 with the IRS in the United States in order for you to secure your tax exempt status as a charity. One of the most important documents that need to be included in your application is your organization’s bylaws.
Although your bylaws are a legal necessity, it’s our hope you begin to see them more as pivotal instruments that literally shape the core of your nonprofit through clarifying your organization's identity, ethics, and decision-making processes from day one, and well into the future. Your bylaws are what you and anyone involved in your organization will look towards to clearly understand your nonprofit's mission, purpose and core objectives.
These bylaws are also the 'laws' that will dictate the number of board members, the process of their election or appointment, their term lengths, roles, and responsibilities as well as key officer positions (such as President, Secretary, Treasurer) and their specific duties. These people will be tasked with running your nonprofit, and your bylaws are what governs their decisions.
More recently, and another regulatory requirement as well, you'll need to include a conflict of interest policy which outlines how potential conflicts are disclosed and managed. It's also now customary, although not required, to include a non-discrimination policy to promote inclusivity and diversity within your organization attached to your bylaws.
There are a host of other important guiding information that all bylaws should include in order to keep your charity on the right course and help it succeed well into the future. And we'll go over each and every one in depth so you know by the time you finish reading this article, you'll not just have a clear understanding on what a charity's bylaws actually are, you'll have your own comprehensive set of bylaws so that your charity will always be grounded in its mission no matter who is running it or when.
Key Components of Nonprofit Bylaws for Your Organization
Most nonprofit bylaws have the same basic framework which includes an overview of essential components that work to guide your nonprofit throughout its existence. So it is extremely important to try and be as inclusive as possible and not leave any decision making open for interpretation whenever possible. This will help make sure your organization and its members stick to its core principles throughout the entire life of your nonprofits, regardless of who is running or managing it.
Nonprofit Bylaw Questions
In order to be as helpful as possible, we’ve broken this section into two parts. The first part is a list of popular questions you should ask yourself pertaining to your nonprofits. You should also share this list with anyone else who is intimately involved with your organization as it’s always best to get as much input as possible when drafting your bylaws.
- Mission and Vision: What is the core mission and vision of the nonprofit, and how should the bylaws support and reflect these?
- Membership Structure: Will the nonprofit have members? If so, what are the criteria, rights, and responsibilities of membership?
- Board Composition: How many board members will there be? What qualifications or characteristics are important for board members?
- Board Member Selection: How will board members be selected or elected? What will be the length of their terms?
- Officers and Roles: What officers (e.g., President, Secretary, Treasurer) will the board have, and what are their specific roles and duties?
- Meeting Structure: How often will the board meet? What will be the structure of these meetings?
- Decision-Making Process: How will decisions be made? What constitutes a quorum for voting?
- Conflict of Interest Policy: How will conflicts of interest be identified and managed?
- Committees: Will there be committees (e.g., Finance, Governance)? What are their roles and how are members selected?
- Financial Oversight: What processes will be in place for financial management and oversight?
- Amendment Procedures: How can the bylaws be amended in the future?
- Dissolution Clause: What happens to the nonprofit’s assets if it dissolves?
- Non-Discrimination Policy: What is your policy on non-discrimination?
- Compliance with Laws: How will the bylaws ensure compliance with local, state, and federal laws?
- Record Keeping and Transparency: What procedures will be in place for keeping records and ensuring transparency?
- Fundraising and Revenue Generation: How will fundraising and revenue generation be governed?
- Conflict Resolution: How will internal disputes be resolved?
- Staff and Volunteer Roles: How will the bylaws define and differentiate the roles of staff and volunteers?
- Indemnification: Will there be a clause to protect board members and officers from liability?
- Adherence to Nonprofit Best Practices: How do the bylaws adhere to recognized best practices in nonprofit governance?
Depending on the size of your organization, this list may be comprehensive enough or may need to be significantly added to. Each organization is different. But the questions should give you a solid understanding of what’s required to create an inclusive set of bylaws, as well as solidifying your overall vision of your nonprofit.
Nonprofit's Bylaws Template
The structure below is the most common format when structuring your bylaws and works well as a template. Feel free to copy and paste this template, replacing our explanations with the answers to the questions above.
- Name of the Organization: Clearly state the legal name of your nonprofit as registered with the appropriate government bodies, usually at the state and federal levels.
- Official Address and Phone Number: Include the legal address of the organization and a telephone number that is reachable by your registered agent.
- Purpose and Mission: Define the specific purpose and mission of your nonprofit as clearly as possible as this will guide all of its activities and decision-making processes from day one and well into the future. Include any services and why they are necessary.
- Membership: If your organization will have members, detail the criteria for membership, all of the rights and responsibilities of each member, and how their admission process works as well as any necessary terminations and member meetings.
- Board of Directors:
- Structure and Composition: Define the size of the board, qualifications for board members, and how they are selected or elected. Be sure this is in compliance with any state guidelines as far as minimum number of board members.
- Terms of Office: Specify the length of time individuals can sit on the board or any term limits.
- Duties and Powers: Outline the board’s responsibilities and powers in governing the nonprofit.
- Meetings: Establish the frequency and procedures for board meetings and how they will be recorded as far as compliance is concerned. Also how long these records will be kept and how they will be destroyed once the allotted period of time elapses.
- Officers: Define the roles and duties of board officers (e.g., President, Secretary, Treasurer).
- Committees: Describe special committees your charity may need as well as their roles and responsibilities.
- Conflict of Interest Policy: Include a policy to identify and manage potential conflicts of interest involving your board, staff, and volunteers. This is now a legal requirement when submitting your application to become a 501(c) organization as well as in certain states.
- Financial Management and Reporting:
- Fiscal Year: Define the fiscal year for financial planning and reporting.
- Financial Controls: Outline your procedures for budget approval, financial management, and auditing.
- Amendment Procedures: Clearly describe how the bylaws can be amended, including who can propose changes and the voting requirements for approval.
- Dissolution Clause: Include a clause that specifies the distribution of assets in case your nonprofit ceases to exist. To stay compliant assets must be used for tax-exempt purposes and must be donated to another nonprofit enterprise or club.
- Non-Discrimination Policy: State your organization's commitment to non-discrimination in all areas of operation and how it will report and handle any instances of discrimination.
- Rules of Order: Choose a procedural framework (like Robert's Rules of Order) for conducting meetings and making decisions.
- Record Keeping: Outline the procedures for maintaining records, including minutes of meetings and financial reports and who is responsible for each.
By structuring your bylaws with our above template, you can create a foundational document that can serve as a practical, clear guide for your nonprofit's governance for years to come. This can help insure your charity keeps to its mission, and daily activities are done in a way that keeps your entity compliant as well as serves the community the way it was initially intended.
Candid Legal Requirements and Compliance
One important aspect to be aware of is, once you have completed your bylaws, they need to be officially voted on and accepted by your Board of Directors before they are considered 'legal' as far as official entities are concerned. This step must be completed before you can complete the submission process for 501(c) tax exempt status with the Internal Revenue Service. So it's important to get your bylaws written and established as soon as possible as they will also dictate many other aspects of how things will be handled and run in your daily operations.
On a state level, legal requirements and compliance issues vary depending on where your charity is incorporated. Some states do require your bylaws for incorporation while others don't. To ensure you meet all obligations, consult your state's Nonprofit Corporation Act or its equivalent. Key elements often mandated by states include the minimum number of directors, their election process, and their specific powers and duties, all of which must be reflected in your bylaws. Therefore, thorough research and understanding of your state's specific requirements are essential before your board votes on the bylaws.
After your Board of Directors officially ratifies the bylaws, remember that any future modifications are subject to the amendment procedures outlined within them. Deviations from these procedures render changes legally invalid. Moreover, to maintain compliance and relevance, it’s vital for your board to routinely review and revise the bylaws in accordance with any changes in federal and state laws, adhering strictly to the established amendment processes.
It’s also crucial to be aware of additional legal stipulations specific to your jurisdiction, as bylaw requirements can vary not just by state but sometimes even by county. To ensure full compliance and to navigate the complexities of these regulations, we strongly advise consulting with a nonprofit attorney or legal expert. Their expertise can be invaluable in reviewing your completed bylaws and other documentation, safeguarding your organization against potential legal pitfalls.
Role of Bylaws in Nonprofit Administration
While your organization's bylaws are primarily designed to guide the Board of Directors, their scope extends far beyond, subtly influencing every facet of your nonprofit, from the nuances of daily operations to the broader strokes of decision-making. The bylaws do more than just govern; they set a stylistic and ethical benchmark that permeates the organizational culture. This establishes a standard that is not only perceptible to your staff and volunteers but also resonates with donors, illustrating the organization's commitment to its ethos and values.
Central to their function, the bylaws ensure that all board activities and decisions resonate with your organization's core mission and objectives. This alignment is crucial, as it profoundly shapes the day-to-day workings of the nonprofit. From the moment everyone, including volunteers, grasps and embraces the organization’s ethos, a cohesive force emerges, propelling the organization forward.
This unity begins at the top, with the Board's strategic decisions, which can range from scaling up the workforce to implementing pay structures, including caps and bonus options, if applicable. The board's responsibilities may extend to appointing key officers and important roles within your organization, decisions that directly shape the organization's operational rhythm.
Such governance directly influences the decision-making processes, steers the strategic direction, and defines the board's oversight of operations. By clearly delineating the roles and duties of officers, such as the President, Secretary, and Treasurer, your nonprofits bylaws facilitate effective managerial processes and a balanced division of responsibilities. This clarity ensures that each role is performed with efficiency and purpose, contributing to the overall success of the nonprofit.
Moreover, bylaws serve as a compass in navigating internal challenges. Whether it's resolving disputes, establishing meeting protocols, or setting operational standards, bylaws foster an environment of harmony and focus. They provide a clear command hierarchy and outline roles and responsibilities, enabling each member to fulfill their duties effectively. This structured approach to labor division is not just about efficiency; it’s about optimizing every aspect of the nonprofit for the greater good.
Bylaws and Board Governance for Nonprofits
The bylaws of your nonprofit organization are fundamental in shaping the structure and defining the responsibilities of the Board of Directors. These governing documents meticulously dictate almost every aspect of board functionality, from the composition of members to the intricacies of board meetings.
Initially, a key consideration is the selection of your Board of Directors. The decision about who sits on your board should align with your organization’s needs. Do you require local business owners with extensive networks, or professionals like lawyers and accountants who bring specialized skills? This decision directly influences the bylaws' stipulation on the minimum and maximum number of directors, which can either broaden your board's diversity or impose limitations.
Furthermore, your nonprofit bylaws must delineate the specific roles and responsibilities of the board. This includes detailing what the board will oversee and what falls outside their purview, as well as defining the impact of various officer roles on board duties. Additionally, the term lengths for board members are a critical aspect; shorter terms can infuse new perspectives regularly, but longer terms offer consistency and stability.
Procedural elements are also essential. Your nonprofit bylaws should specify how and when board meetings occur, the process for setting agendas, and the methods for notifying your board. Record-keeping protocols, including the creation, maintenance, and eventual disposal of meeting minutes, are crucial for organizational transparency and historical reference.
Equally important is defining a quorum – the minimum number of members for valid meetings and decision-making. Amendments to the bylaws and the implementation of voting procedures are powers vested in the board, and the bylaws should give clear instructions on how these are executed.
Additionally, conflict-of-interest policies, particularly relevant in voting scenarios, must be included. These policies usually require individuals with conflicts to abstain from voting on related matters, ensuring ethical decision-making.
Overall, the bylaws' provisions regarding board meetings, voting, and general governance are indispensable. They establish a transparent, efficient, and democratic operational framework. By clearly outlining these processes, the bylaws are instrumental in maintaining order, facilitating informed decision-making, and ensuring legal compliance. In essence, they are the cornerstone of smooth and effective governance within your nonprofit organization.
By now it should be obvious that your nonprofit's bylaws are more than just a necessary document needed for applications, they’re important in defining the organization's identity, ethics, and operational guidelines. These documents not only outline crucial aspects such as the structure and roles of the board, decision-making processes, and officer duties, but also shape the organizational culture and ensure compliance with legal standards.
Frequently Asked Questions
Do I need to make my bylaws publicly available?
No, bylaws are internal documents and are not needed to be publicly accessible on your site like your nonprofit’s income and giving statements are. Although some nonprofit’s do post their bylaws publicly in order to show transparency and build trust with their donors.
Are the bylaws of a foundation and nonprofit the same?
Basically yes, they are the same or very similar. A foundation is also a nonprofit and therefore has many of the same requirements and goals a nonprofit has, they are just structured differently as far as their corporate structure goes.
Do my bylaws need to be submitted with our tax return each year?
No, your bylaws need to be submitted once to the IRS when applying for nonprofit tax exempt status. After the process is completed you will no longer need to submit your bylaws to the IRS.