If you're unsure how to write bylaws for nonprofits, you aren't alone. This legal document lays out the operating rules and procedures for how your organization will run. While it's necessary to ensure you're writing the best bylaws possible, this experience doesn't have to be daunting! In this article, we'll walk you through some key tips and best practices to keep in mind.
The nonprofit sector serves the public interest and plays an essential role in our economies. Working hard to strengthen communities and address a variety of issues and challenges, nonprofits enrich our lives in a variety of ways. They benefit our society in fields such as religion, science, economy, health, arts and culture, civil rights, environment and education, and more.
Bylaws for nonprofits raise the level of accountability, transparency, and effectiveness of all nonprofit organizations to foster excellence in their service and inspire trust.
How do we remove a board member? How often should the board meet? These are some of the many common questions that arise in nonprofit meetings, all of which can and should be answered in nonprofit bylaws. A nonprofit’s bylaws should answer these and other questions while following all applicable state law.
In this article, we share several basic guidelines and best practices so that you can achieve a well-managed and responsibly governed organization.
Nonprofit bylaws are a nonprofit’s operating manual. Nonprofit bylaws (or Bylaws and Articles of Organization) are the main governing document for a nonprofit organization. They are the main official documents of an organization, nonprofit or for-profit.
While the IRS does not require specific language in the bylaws of exempt organizations, many state laws dictate that tax-exempt organizations must have a clear operating procedure – often outlined in bylaws.
The board creates bylaws when establishing the organization. Bylaws supplement the rules already defined by the state corporations code and guide how your nonprofit runs. It’s important to obtain the applicable state law and make sure that your nonprofit’s bylaws remain compliant. Furthermore, some cities have further regulations for nonprofits.
The purpose of bylaws is to guide the nonprofit board’s actions and decisions, as well as the organization’s operating rules. Bylaws are helpful in preventing or resolving conflicts and disagreements. They can protect the organization from potential problems by clearly outlining rules around authority levels, rights, and expectations.
If the Board of Directors fails to follow the bylaws, it could be liable for breaching its duty to the nonprofit organization.
It’s important to note that though bylaws are your operating manual, they are also legal documents. This means that there are legal requirements for what should be included. These requirements vary depending on the state in which your nonprofit operates. For example, some state laws require membership, board selection, and other issues to be stated in the articles of incorporation. To be sure your bylaws are in accordance with state laws, get assistance in drafting or amending your bylaws from a qualified professional experienced in nonprofit matters. And even when you get help, it’s still the board’s responsibility to provide input throughout the process and to vote to adopt the final product.
We have an excellent webinar by social impact architect and attorney, Erin McClarty talking about the five big compliance obligations you need to know. Your nonprofit has financial, legal, and general compliance requirements you must take into account while creating your nonprofit bylaws. Check it out to learn more!
Although bylaws are not considered public documents, making them public and easily available increases the organization’s accountability and transparency – ensuring the trust of donors, supporters, and beneficiaries.
The Bylaws should include only fundamental rules governing the nonprofit. Information that changes frequently (e.g. staff job descriptions, fundraising or marketing guidelines, charters, etc.) should not be included. These are better suited for procedure or policy manuals.
Also, don’t be too specific. For example, it’s better to say that board meetings will be held monthly, rather than to specify they will be held the first Thursday of each month at 7:30 p.m.
Bylaws are like skeletons. They determine how the entity should “move” and operate, but “the muscles and organs” will vary – since every nonprofit has its own unique needs. Good bylaws match the organization’s mission, particular goals for governance, operational needs, and more. When you establish your organization, it’s important to choose operating rules and procedures that make the most sense for your day-to-day work.
A church’s bylaws, for example, will look different to a school’s nonprofit bylaws. Bylaws should also take into consideration the culture of the organization, the number of people involved in managing the organization, and the expectations and attitudes of the members and directors.
When writing your nonprofit bylaws, the difference between the words “shall” and “may” is crucial. Use the word “shall” when it’s something board members are required to do. Use “may” when the task is optional. This will help avoid ambiguity in the future.
Only include provisions that are realistic. For example, don’t require a 2/3 approval of every member eligible to vote if, in practice, you haven’t even been able to get 2/3 of members to vote. Furthermore, if the board is not going to carefully adhere to specific provisions (e.g. deadlines), it’s far better to omit them.
Make sure your bylaws are reviewed approximately every two years. Because board officer terms make it hard for the board to keep track of bylaw revisions, have this duty included as a responsibility of the executive director. Bylaws should accurately reflect how the organization works and remain relevant.
Note: If you made major structural or authority changes, you need to report them in your next Form 990.
You can state the name in the title, such as “Bylaws of XYZ Corporation.” Since the purpose of your organization is stated in your Articles of Incorporation, you don’t need to repeat it in your bylaws. If you do include a purpose section in your bylaws, it should repeat exactly what’s written in your Articles of Incorporation.
Bylaws should summarize the board members’ duties to act in good faith, in the best interests of the organization.
Most nonprofits include a president, vice president, secretary, and treasurer. Describe the qualifications and duties, as well as details on election and termination (resignation and removal). For example, you might specify that resignation from the board must be in writing and that a board member may be removed by a 75% vote of the remaining directors if sufficient cause exists for removal.
Include a provision specifying term limits. For example, a term could be three years, with term limits of two consecutive terms.
Membership of your nonprofit could be limited to the members of the board of directors. If you have members, you would list criteria for membership eligibility, dues, rights of members, voting rights, and termination of membership.
Write sections that cover meeting frequency and when the annual meeting should be held. There might be a section on how to handle special meetings and notices of meetings.
The minimum number of board members who must be present for official decisions to be made is a quorum. For example, if an organization currently has thirty members, and the bylaws state that one-third of the members constitute a quorum, then official decisions can only be made at board meetings where ten or more members are present.
Note: Many states specify the minimum required for a quorum, so make sure you check the rules and regulations in your state.
Specify the minimum and maximum number of board members (e.g. a minimum of three and a maximum of twenty board members). Some states specify a minimum, and some specify a formula for a minimum and maximum.
Name the standing committees, such as the finance committee or an executive committee. Additionally, this article should outline how a special or emergency board meeting may be convened. You may also choose to give the board the ability to create committees and task forces instead of naming specific committees in the bylaws.
Indemnification is a statement that limits the personal liability of board members. In some cases, nonprofits must indemnify directors and officers; that is, protect and defend them from loss or harm resulting from risk. In other cases, they are prohibited from doing so.
Outline compensation arrangements for directors, officers, and employees. Use the IRS Form 1023 to understand the language you may use for the approval of compensation arrangements.
The board hires the executive director. They hold day-to-day responsibility for the organization. Make sure to specify the board’s authority to terminate the executive director, including the number of votes needed to implement this decision.
Conflict of interest policies protect organizations from potential legal issues down the line by requiring board members and key staff members to report any potential conflicts of interest.
Most bylaws include provisions for conflict of interest policies. Use the language recommended by the IRS. For guidance, check IRS Form 1023.
You can include the conflict of interest policy in your nonprofit bylaws or simply state in the bylaws that the conflict of interest policy will be developed as a separate document.
To avoid cumbersome procedures, make your bylaws not too difficult to amend. Consider allowing an amendment to pass by a majority vote at a regularly scheduled board meeting.
Usually, nonprofits must have a dissolution clause unless otherwise specified by law. In cases when your state law requires dissolution clauses, they generally must specify that the organization’s assets will be distributed for tax-exempt purposes.
Hence, a charity’s dissolution clause might state that the dissolved entity must distribute its assets for other charitable purposes if the charity dissolves. Whether your organization has to have a dissolution clause depends on the type of organization you create and your state’s laws.
In this section, we answer some common and important questions regarding bylaws for nonprofit organizations.
Each employee/board member of the nonprofit organization is legally accountable to follow its bylaws earnestly. If there seems to be a non-compliance, the first step is to double-check the bylaws.
Once you’re sure, reach out to the person in question to understand if they committed an innocent mistake. Most cases resolve at this stage. If not, it is advisable to seek legal help and proceed accordingly. If your nonprofit is part of a bigger organization, you may also discuss the matter with a higher authority before taking any action.
A nonprofit’s charter outlines the processes for deciding on and enforcing the rules that establish the structure of the nonprofit. The chartering process varies according to different states and it’s mostly written by the nonprofit’s attorney.
On the other hand, bylaws comprise the rules on which the nonprofit functions. Your board of directors can write your bylaws. It might be very detailed or general, depending on the size and scope of the organization.
Nonprofit bylaws are often called the evergreen documents of the organization. You should seldom make a change once the IRS accepts your bylaws. However, it is advisable to review the bylaws once every two years to ensure you’re putting correct information while filing IRS form 990.
Also, if you’re planning to bring about a fundamental change to the structure of your nonprofit, you will need to review and amend your bylaws.
The final step is for the board to review and approve the bylaws. The board president should sign the bylaws and have the secretary attest to the signature or have all board members sign the bylaws.
Drafting good nonprofit bylaws is an art that requires careful attention to legal and regulatory requirements. It calls for a balancing act between precision and flexibility, best practices, and careful tailoring to the nonprofit.
We hope that this article will help your nonprofit practice accountability and transparency, legal, ethical, and responsible fundraising, and effective governance. Reinforcing these with sound practices demonstrates that your nonprofit deserves the public’s trust. Above all, this shows that you are serious about advancing your mission and striving towards excellence.
At Donorbox, we strive to make your nonprofit experience as productive as possible, whether through our online donation system or through resources on our Nonprofit Blog. We also have dedicated articles for starting a nonprofit in different states in the U.S., including Texas, Minnesota, Oregon, Arizona, Illinois, and more. This should come in handy if you’re planning to start one and need insights into the process.
Disclaimer: This article is not intended to provide legal or tax advice. For questions regarding your specific situation, please consult a qualified attorney.
Ilma Ibrisevic is a content creator and nonprofit writer. She’s passionate about meaningful work, sustainability, and social movements. If she’s not working, she’s obsessing over coffee or cooking. You can connect with her on Linkedin.
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Ilma Ibrisevic
