Determining how your nonprofit operates
Your articles of incorporation created the legal entity that is your nonprofit. Up next is board bylaws, which determine how that entity operates. Think of bylaws as your organization's rulebook for essential functions, such as how to run meetings, select directors and appoint officers. Bylaws also contain provisions to help you get—and keep—your 501(c)(3) tax exemption.
How to get started
Review the default bylaw provisions in your state's nonprofit corporation act. Some states even provide templates or forms to help draft bylaws.
To be absolutely certain that your bylaws follow state law, it is best to have a knowledgeable attorney work with you to develop them. If that isn't possible or you would rather take on the task yourself, check out how-to resources and sample documents from organizations such as Nolo (which produces do-it-yourself legal guides).
What to include
Here's an outline of the basic information to include in your board bylaws. In this context, "article" simply means "heading."
Article 1: Principal office
The principal office is typically the same as the registered office listed in your incorporation document.
Article 2: Purpose
This section should contain a statement of your 501(c)(3) tax-exempt purpose. It should also list your nonprofit's major purposes and activities.
Article 3: Meetings and indemnification
Include here information about board meetings, such as dates and times of regular board meetings and the rules of order to be followed (typically Robert's). Also list the terms of office and quorum requirement (the minimum number of members required to make the meeting proceedings valid). Finally, include indemnification language that protects directors from being personally liable for the debts, liabilities or other obligations of the organization.
Article 4: Designation of officers
Most nonprofits include a president, vice president, secretary and treasurer. Describe the qualifications and duties, as well as details on election, term and termination.
Article 5: Committees
This is the place to name standing committees, such as finance. This article should also outline how a special or emergency board meeting may be convened. If you plan to have an executive committee, you may specify the details here. You may also opt to give the board the ability to create committees and task forces instead of naming specific committees in the bylaws.
Article 6: Executive director and staff
The executive director is hired by the board. The executive director has day-to-day responsibility for the organization, including hiring other staff. Specify the board's authority to terminate the executive director, including the number of votes needed to implement this decision. Also consider prohibited relationships, such as a relationship by blood, marriage or domestic partnership between the executive director and any board member or advisory board member.
Article 7: Corporate records, reports and seals
Describe where and how corporate records will be kept, and how a corporate seal may be adopted and used. Also cover director and member inspection rights and periodic reporting requirements.
Article 8: Tax provisions
Restate the most significant provisions applicable to tax-exempt status. Including these helps assure the IRS that your corporation is eligible for tax exemption.
Article 9: Conflict of interest and compensation approval policies
Bylaws should include a provision for handling conflicts of interest. Play it safe and use the language recommended by the IRS. For guidance, check IRS Form 1023.
You'll also want to outline compensation arrangements for directors, officers and employees. IRS Form 1023 contains language you may use for the approval of compensation arrangements intended to comply with the safe harbor provisions of the excess benefit rules.
Article 10: Amendment of bylaws
Don't make your bylaws too difficult to amend. Rather than requiring a two-thirds vote by membership (for organizations with voting members) or other burdensome requirements, consider a process for bylaw amendment that's not onerous — such as allowing an amendment to pass by a majority vote at a regularly scheduled board meeting.
Article 11: Membership
This article is necessary only if your organization will have members. If applicable, use it to cover membership criteria and member rights. Some details—such as membership dues determination, which may change frequently in the future—are better specified in board policies than in the bylaws.
Check, and double-check
Before you submit the bylaws for board approval at the first board meeting, be sure to double-check them for internal consistency as well as consistency with your articles of incorporation and your state's nonprofit corporation act.
Don't let bylaws be bygones
Once the bylaws are approved, you may be tempted to file them and forget them. Don't! Bylaws need to be reviewed at least every few years to ensure they are still relevant and useful.
Consider what could happen if you neglect your bylaws, such as the not uncommon scenario in which a board wants to remove a disruptive member—only to discover that the bylaws were written 20 years ago and have no such provision.
A best practice is to include bylaws as an agenda item at an annual meeting of the board of directors. Changes to the bylaws should be recorded in the board minutes, added to copies of the bylaws, and, in some cases, reviewed by an attorney experienced in nonprofit law.
This article draws on the expertise of Grace Davies, a Minneapolis-based attorney with special interest in product liability, medical malpractice and employment discrimination.
References
Nolo: Nonprofit formation documents: Articles of incorporation, bylaws, and organizational minutes by Anthony Mancuso
Venable: The 15 most common nonprofit bylaw pitfalls: How to avoid the traps (2013)
CompassPoint: By-laws in brief by Jan Masaoka (2002)
Nolo: Drafting corporate bylaws by Beth Laurence
Nolo: Online legal forms
