Writing bylaws can prove to be a very big step when forming a new organization or corporation especially if it’s a nonprofit one. This is because they are the reference guides in the effective running of the organization. Bylaws are very important to nonprofit organizations as they are a requirement by the state so as to be recognized and also for tax exemption purposes under code 501c3. With the relevant bylaws in place, the organizations can take their good cause in the right direction, and therefore realize their purpose in charity and donations.
What Are Nonprofit Bylaws and How to Write Them
Nonprofit bylaws are rules tailored to the needs of the organization as a nonprofit one. They are written and submitted in accordance with the state requirements of code 501c3 exempting the nonprofit organizations from being taxed. The bylaws are required to be submitted together with the application for tax exemption under IRS form 1023. This is the application for recognition as a tax-exempt organization. In addition, bylaws allow for some flexibility on some matters ensuring that the board members don’t get distracted from their real aim which is to promote commission-free charity and fundraising.
Definition of Nonprofit Bylaws
Nonprofit bylaws are the organizational manuals that will help in directing the board’s decisions and actions and ensuring its run in an orderly manner. They are therefore the organization’s internal affairs guidebook which is helpful in preventing or resolving conflict and disagreements. In addition, they explain in detail the essential operations of the nonprofit organization. The bylaws incorporate the organization in one or more states and are written in accordance with the guidelines given by a state.
It is advised that you review with your state laws when writing bylaws. This is because each state has different requirements and provisions which should be met when writing the nonprofit organizations bylaws. Some of the state requirements which vary from state to state are;
- State laws vary on board structure requirements. Most states require that an organization have a board with at least three directors but some have a minimum of one.
- Some states require the annual and board meetings to be conducted a certain number of times for example twice or thrice per year and it should be indicated on the bylaws.
Hire an Attorney
The organization is advised to hire an attorney. Even though it is not necessary, they play a big role in nonprofit organizations from the beginning. They assist in instances where legal advice may be needed or in cases where they are required to represent the organization or members. They provide their knowledge in writing of the bylaws so that the application for IRS form 1023 becomes easy. Attorneys also guide the nonprofit organizations through the various state laws that an organization should follow in terms of tax exemptions since their primary function is charity and fundraising.
What are the Bylaws and Resolutions?
The organization should write bylaws and resolutions, which are the most important documents for incorporation to take place. Each of the documents serves different purposes in the management of the organization. Bylaws are prepared and adopted when the corporation is first formed and contains the overall rules on how the corporation is run. At the same time, resolutions are prepared periodically, as needed, to bring forth critical corporate decisions. The resolution is written to indicate certain actions approved by the directors or officers.
Name, Purpose and Governance
The name of the nonprofit organization should come first in the bylaws. The nonprofit purpose of the organization should be clearly stated as being exclusively charity and fundraising work and it should be the main highlight in the bylaws. Stating the purpose is important in accordance with section 501(c)3 of the Internal Revenue Code, which qualifies the organization not to be taxed by the IRS. For smooth operation and running, the organization is run by a board of directors as required by law. The board members should be responsible and have control over the management of affairs and properties of the organization.
Board Members Structure, Roles and Election
The organization’s board of directors should have at least one director for making the major decisions in the organization. But it all depends on the state you are in you can select a minimum of three people on the board. For smooth, efficient and better running, the organization hierarchy of office should be given in detail. From the top for example can be the president followed by the vice president till it comes down to the treasurer.
All these people have different roles to play in the governing of the organization and they should be made clear in the bylaws. The board of directors is selected through voting, which should be done every year. This brings fairness and allows voting members to participate. Voting can only be done when there is a board of director’s quorum.
Membership and Selection Process
Most charity and fundraising organizations provide membership, which includes the public who support the good cause and purpose of the organization. However, some members will have limited powers. For instance, some will be non-voting members. Applications to become voting members are open to all and they are granted upon the board’s majority vote.
Annual members meetings should take place in a specified month in which specific location, dates and time are decided upon by the president and board of directors. The organization should conduct elections during this meeting to get the new directors and officers and also review the activities of the year and discuss the forward for the coming year. There should be regular member meetings in correspondence with the state laws. The chair should decide the time, date and locations to the members. The organization should also allow special meetings, which may be called for by the board of directors, the president or through a petition signed by a certain percentage of voting members.
Indemnification and Compensation
The organizations’ bylaws should include a clause that agrees to compensate any officer or director, both current and former members against all loss incurred during the defense of any action, or lawsuit, which come up as a result of being or having been a member of the organization at any position. In case this happens, the organization will compensate all losses accrued by the member.
Conflict of Interest Provision
The organization should have a policy in place that protects the organization’s tax exemption when it is considering getting into any transaction type that may end up benefiting an officer’s private interests or the directors. The main aim of this provision is to supplement the federal and state laws on conflict of interest in nonprofit and charitable organizations.
In case of termination or dissolution of the nonprofit organization, any lawfully owned assets should be distributed to one or more qualifying organizations described in Section 501(c)(3) of the Internal Revenue Code. The organization or organizations to which the assets should be distributed should have a charitable purpose which, at least generally, includes a purpose similar to the terminating or dissolving the nonprofit organization.
Bylaws Amendment Rules
The bylaws may be amended by the board of directors through a majority vote in a meeting. A written notice explaining the proposed amendments and a summary of the expected changes to the bylaws should therefore be distributed to each director within a reasonable time. The same applies to the changes in the article of incorporation. The only difference is that the notice for the changes expected in the article of incorporation should be given to the directors three days before the date of the meeting. This is because all changes to the article are only effective if an absolute majority of the directors are in their favor.
Nonprofit Bylaws Best Practices
Best practices are there to ensure that the nonprofit organization will be well-governed and adhere to the state and local laws. This ensures transparency, accountability and efficiency in the running of the organization, thus gaining the trust of the public.
Make Sure They Fit Your Organisation
The bylaws should be customized effectively to have policies that best fit the organization’s operations and needs. In addition, they should bring about smooth running with the set state laws.
Be Realistic with Your Goals
Setting realistic goals helps the nonprofit organization cement its mission statement. The organization should not promise members and the public too much but should set goals that are concrete and achievable as you can make them. It should say what it’s going for and gives the best way it can do it so as to meet the mentioned purposes and goals towards charity.
Do Not Be Too Specific
The dates and venues of meetings should not be stated specifically on the bylaws as they can change over time. Therefore, notices are put across and made available to members on the dates so that they avail themselves and give them time to prepare effectively for the meetings.
Make Them Public
Since the organization works mostly with the public who make donations and the recipients, they deserve to know the happenings and how the organization runs its charity and fundraising work. Everybody who shares the same cause deserves to access the bylaws easily and understand how they work. Transparency will increase the organization’s accountability and help it gain public trust.
Since the bylaws are the principal guide to the successful running of the organization, the organization should review them every year so that they remain relevant to the changes taking place. These bylaws reviews should be done during the annual general meetings so that it involves all the board members.
Reaching The Target
The organization should follow the bylaws to the latter. It should always strive for the good cause and always be transparent and accountable to the public. The role of the organization is to ensure that all the donations given outreach the target charity in full, without deducted commissions.