TABLE OF CONTENTS
How long can someone serve on our Board?
What if I need to fire a Board member?
How many Board members need to say “yes” to approve a major capital project?
Does a situation constitute a conflict of interest?
All of these questions, and more, can and should be answered in your nonprofit bylaws.
However, more often than not, when such or similar questions arise and nonprofits turn to their bylaws for guidance — many find them to be antiquated, patch-worked, or not reflective of the organization’s current practices.
While drafting your nonprofit bylaws can be a stressful, confusing, and time-consuming process, it’s also an incredibly important one.
Nonprofit bylaws are arguably the most important document your organization will ever draft.
But… If the very thought of drafting your nonprofit’s bylaws makes you anxious, fear not!
Below, we share the best tips and practices from experts in the field to help you draft your nonprofit bylaws. We also share a downloadable nonprofit bylaws template.
What are nonprofit bylaws?
Think of your nonprofit bylaws as your internal affairs guidebook or your organizational manual. They set out procedures and guidelines for processes such as electing directors, holding meetings, membership structure, and other essential governance matters.
They also help guide the actions and decision-making of the Board of Directors and help prevent and resolve conflicts or disagreements.
They’re an internal legal document and do not need to be filed with the State, but the IRS will ask you to either attest to the fact that they have been adopted or request that you attach a copy to your Form 1023 application when incorporating and applying for the 501(c)(3) exemption.
Nonprofit bylaws are important not only because they must be completed in preparation for becoming incorporated in your state, but also because they help settle potential issues between your members down the line.
It’s also wise to keep your bylaws public. Giving your donors access to your bylaws helps increase your organization’s transparency and keeps you accountable to your mission.
What to include in nonprofit bylaws
Bylaws are written for a number of audiences, from IRS examiners to state regulators, lenders, employees, Board members, and donors.
IRS examiners and state regulators look at bylaws to confirm your compliance with standards of operation.
Vendors and auditors look to see that actions are properly taken.
Finally, your organization looks to bylaws to guide its own governing and administration.
If all of these different functions and purposes are not considered when writing, nonprofit bylaws can easily become useless. This is particularly the case when nonprofit bylaws get adapted from outdated corporate bylaws with little regard to the uniqueness of nonprofit governance.
Below we outline the main components of a good nonprofit bylaws document, but for more information on provisions and language, download our free template (find at the end of the article).
1. General information
This section should outline some basic information about your nonprofit, including your nonprofit’s name and your location. If you have multiple locations, refer to your headquarter’s address.
Make sure to use your complete organization name as it appears on your Articles of Incorporation.
2. Statements of purpose
The following is the language that is required by the IRS in your Articles of Incorporation. Therefore, it’s not necessary to include it again in your Bylaws, but it can still be a good idea to do so:
“This corporation is organized exclusively for charitable, religious, educational, and scientific purposes, including, for such purposes, the making of distributions to organizations that qualify as exempt organizations under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code.”
Then, include a more specific statement of your nonprofit’s mission and goals.
Including your mission in your bylaws can be very helpful further down the line during those times when your organization potentially strays off course.
While an organization's mission generally remains the same, as time passes, your short-term and long-term goals will likely change and adapt. When they do, you should amend your nonprofit bylaws accordingly.
3. Leadership
Establish your Board of Directors and any officers you need, defining how many directors your nonprofit will have, the length of their terms, what will be the process for replacing, hiring, or firing them, and more.
Clarify who has the decision-making power, what percentage of members needs to approve a decision, and if anyone has veto rights.
Carefully consider provisions related to the following:
- Term limits. For example, you might decide to set forth a minimum of seven and a maximum of fourteen Board members. (Some states specify a minimum, so check your state’s law for more information.)
- Quorum. A quorum is the minimum number of members who must be present for an official decision to be made. For example, if an organization currently has 20 members, and the bylaws state that 50% of the members constitutes a quorum, then official decisions can only be made at Board meetings where 10 or more members are present.
- Appointment, removal, and replacement of Board members. Does the Board select its own replacements or are Board members appointed by members?
Check out the template at the end of the article for more details on provisions related to the Board.
Note: Many states also specify the minimum required for a quorum; so check your state’s regulations.
4. Membership
Specify whether your organization has members and, if so, what are their rights. You might have members with legally enforceable membership rights such as voting rights, or people called “members” that don’t have voting rights. Whatever your situation, clarify the distinction in your bylaws.
This is a decision nonprofits often make at their first meeting when they adopt their bylaws.
Pro tip: If you do not intend to have public members, then you can simply include the following sentence in your nonprofit bylaws:
“The membership of the corporation shall consist of the members of the Board of Directors.”
4. Meeting and voting procedures
Set out the processes and guidelines for your Board of Directors meetings. Establish the number of meetings within a year, along with where and when these meetings will occur.
Prescribe your voting procedures, including how many members must be present for a quorum, as well as how many votes are necessary for an initiative to pass.
Is proxy voting allowed? What about phone attendance?
Check out the template at the end of the article for more details on provisions related to the Board.
5. Conflict of interest policy
Your bylaws should include a conflict of interest policy, as well as the procedures for regulating and judging cases when this policy is violated.
The decisions of the Board members or officers cannot result in something that conflicts with the nonprofit’s cause. This includes excess benefit transactions or the private benefit of a director or officer.
6. Committees
Define whether or not your organization will have committees, how many, and when (if ever) these committees will dissolve.
Allowing committees to be formed and abolished by a board resolution shortens the bylaws and reduces the number of necessary amendments to bylaws.
For example, one committee might handle the grant applications, and another may handle volunteers.
7. The dissolution process
In most US states, a dissolution clause is a legal requirement to incorporate a nonprofit organization.
A dissolution clause essentially outlines how your organization will distribute its assets in case of dissolution.
Those distributions need to be legally allowable for a nonprofit, which usually means stating that your organization’s assets are to be distributed in other charitable ways if your nonprofit dissolves.
8. Provisions to change the bylaws
Occasionally, you’ll need to change your nonprofit bylaws to reflect your organization’s evolution.
This is why it’s important to include provisions for amending your bylaws. A clear process will prevent you from making any sudden (and sometimes not so thoughtful) changes to the bylaws. The bylaws should be flexible enough to change, but not so flexible that they can constantly be altered without due consideration.
For example, some bylaws may require that amendments be approved by a two-thirds vote of the membership. Depending on your situation, this might be just right or it might be too burdensome.
Focus on creating a bylaw amendment process that is not overly difficult to execute and that is right for your nonprofit organization.
How to write great nonprofit bylaws (bonus tips)
I. Understand your state's nonprofit corporation law
Firstly, make sure that your nonprofit bylaws do not permit practices that are prohibited by your state’s nonprofit corporation act.
If they do, your bylaws will have no force or effect, and any actions taken pursuant to those provisions will be void.
Since nonprofit corporation acts vary from state to state, always take the time to review the relevant state requirements.
Pro tip: Make sure your bylaws are consistent with other regulatory documents.
II. Form a bylaw committee
Forming a bylaw committee will help you speed up the process of drafting, reviewing, and amending your nonprofit bylaws.
For best results, make your bylaw committee an accurate representation of your organization.
If your bylaw committee does not represent a full and accurate cross-section of your organization’s membership, there might be some issues when sending bylaws to the full membership for approval.
To avoid this, create a bylaw committee that fully reflects your organization's population.
III. Pay attention to the language for 501(c)(3) status
For example, if you’re a nonprofit that shelters stray animals, the wording in your bylaws should prove that you exist for that purpose alone.
Pro tip 1: For more information, view the IRS’s suggestions for the language you need to include.
Pro tip 2: If you’re looking for ways to make incorporation faster and easier, check out these services.
IV. Be detailed, but don’t go overboard
It’s important to make your nonprofit bylaws comprehensive. The more is set out in the bylaws, the fewer chances there are for confusion or conflict. However, don’t put too much in the bylaws either. That might unintentionally lead you to violate your bylaws or otherwise have to amend them too often.
For example, if your bylaws state that executive committee meetings will be held on the first Monday of each month, you can’t change to Tuesday without a change in the bylaws.
Pro tip: Don’t treat your bylaws as a policy manual – including provisions on employee vacations or the smoking policy. For considerations such as those, it’s more appropriate to create a separate policy manual for management purposes.
V. Report changes to the IRS
It’s important to regularly review your nonprofit bylaws. Bylaw reviews help ensure that you are compliant with your state laws and that your bylaws are flexible enough to accommodate your current organizational practices.
According to the IRS’s compliance guide for 501(c)(3) nonprofits, "An exempt organization that is required to file an annual return must report the name, address, and structural and operational changes on its return."
Failing to do so could affect your organization’s tax-exempt status.
If your organization is exempt from federal income tax, you are required to report changes to your bylaws and other governing documents annually to the IRS on your IRS Form 990.
This refers to substantial changes, such as the ones to your organization’s purpose or main methods of operation. Report minor changes in your organization’s next annual Form 990.
Pro tip: Check with your state of incorporation about its regulations for reporting changes to your bylaws.
VI. Make your bylaws a working document
Nonprofit bylaws should be actively worked with, amended when needed, and used often.
Don't let them gather dust somewhere in a drawer or a long-forgotten folder. Bring them to life and capitalize on them to increase your organization’s efficiency and reduce friction.
Try not to include in your bylaws those provisions that will tie the hands of future boards too much (e.g. requiring a two-third approval of every member eligible to vote if you have a lot of members). Think long and hard about the downstream consequences to all provisions.
Pro tip: Clearly outline your nonprofit bylaws in your organization’s rulebook and employee handbook. This will ensure all employees are aware of the bylaws and how to follow them.
Nonprofit Bylaws Template
Special thanks to Harbor Business Compliance Corporation and American Bar Association.
You are free to edit the language as needed to suit your needs.
Note:
This article is not intended to provide legal advice or opinion and should not be relied on as such. We advise you to coordinate with legal counsel from the beginning to the end of your bylaws drafting process. If you choose to get assistance in drafting or amending your bylaws, we would recommend you to choose an expert experienced in nonprofit matters. This could be an attorney or a professional services firm.
