The concept of nonprofit bylaws best practices is not a rigid, one-size-fits-all set of rules as to what the bylaws should say. A well-written set of bylaws will reflect two primary sources of information: the federal and state laws that govern a nonprofit corporation, and the unique shape and requirements of your organization as you've designed it.
The following are some general guidelines to be considered when creating bylaws for a nonprofit organization:
- Read your state's nonprofit laws. A nonprofit corporation is governed by the laws of the state where it is incorporated. All states have some form of nonprofit corporation act, which typically has various provisions relating to the bylaws of a nonprofit corporation. These provisions are different in each state, so you need to be sure you understand any limitations your state's law imposes on bylaws. For example, there may be a legal requirement as to the number of board members.
- Don't make bylaws that are overly detailed. Bylaws should allow for some flexibility. For example, it is better to say that board meetings will be held monthly, rather than to specify they are to be held the first Tuesday of each month at 6:30 p.m. You don't want to have to amend the bylaws to switch to a different day or time. Also, too much detail can lead to unnecessary conflict over such details, thereby distracting board members from the real purpose of the organization.
- Tailor the bylaws to the needs of your organization. Every nonprofit has its own unique needs. To reflect these, the bylaws often will take into consideration the purpose and culture of the organization, the number of people involved in managing the organization, and the expectations and attitudes of the members and directors.
Common Bylaw Provisions
It is important to reiterate that, when determining how to write bylaws for a nonprofit organization, you need first to be sure that they comply with the federal or state requirements for your nonprofit. The following are some of the types of provisions commonly found in nonprofit bylaws:
- Name and Purpose. Many bylaw templates have paragraphs for the name of the corporation and its purpose. However, the name can be stated in the title, such as "Bylaws of ABC Corporation." Since the purpose is stated in the Articles of Incorporation, it is not necessary to restate it in the bylaws. For determining the nonprofit tax exemption, the Internal Revenue Service (IRS) will look at the Articles of Incorporation. If you do include a purpose section in your bylaws, it should repeat exactly what is written in the Articles of Incorporation.
- Governing Structure. A nonprofit corporation can be set up in one of two ways: It can be organized with members who elect a board of directors, who then select officers. Or it can be structured to be governed by a board of directors, with either no members or members who do not have any voting rights. With respect to the governing structure, the bylaws should state:
- Whether there will be members and, if so, the rights of members, including whether they will have voting rights
- The minimum and maximum number of members of the board of directors, how they are elected, how long a member will serve, any term limits, and how board members may be removed
- The titles of corporate officers, how they are appointed, and for how long
- Decision-making. This will include provisions such as the number of directors required for a quorum, the minimum number of board meetings to be held each year, how special board meetings will be called, and how committees can be created and ended. Some nonprofits require a supermajority vote, rather than a simple majority, for certain actions, such as amending bylaws or removing a board member. There also should be provisions for whether meetings and voting may be conducted by telephone, email, online, or proxy.
- Review and amendment of bylaws. Procedures should be outlined for how often the bylaws should be reviewed, and how they can be amended between such reviews, including whether amendment only requires a majority vote or whether some type of supermajority is needed.
- Conflict of interest. To avoid problems with the IRS, it is essential for a nonprofit to have a way to deal with a conflict of interest between the corporation and a member, director, or officer. Provisions for a conflict of interest in nonprofit bylaws can be handled in one of two ways: The conflict of interest policy can be spelled out in the bylaws, or the bylaws can simply state that the conflict of interest policy is to be developed as a separate document.
- Indemnification of directors. There should be a statement that board members shall not be personally liable for actions taken when acting in the capacity of a director.
Nonprofit bylaws should provide all the basic guidelines for operating your nonprofit corporation, without becoming overly detailed and inflexible. You also need to be sure that the bylaws don't conflict with either nonprofit legal requirements or the Articles of Incorporation. You may find it advantageous to engage the services of an online services provider to help ensure that your nonprofit is properly set up and registered.