Law is an essential part of human existence. It serves as a guideline for what is accepted in society and helps to mediate differences in interpersonal relations. Without some laid down rules and regulations, there would be a conflict of interest in any human gathering. For nonprofits to operate effectively, there should be a legal document outlining how they will be governed. Nonprofits bylaws are legal documents that embody the fundamental principles of nonprofit organizations, including how they go about getting funding, such as a nonprofit line of credit. It outlines the member requirements, matters concerning its finances, frequency of meetings, amendment procedure, voting procedure, and more.
Nonprofits bylaws are the operating manual for nonprofit organizations. It gives clarity on the duties and roles of the board of directors and officers. It also indicates how funds received from donations and grants would be disbursed, plus it describes the conflict of interest procedure and policies and other relevant corporate rules.
Most importantly, nonprofits’ bylaws help directors pilot the affairs of nonprofits effectively, resolve any potential conflict, and demonstrate to the public that their organization is responsibly managing funds to achieve its missions. In addition, it can help facilitate nonprofit ease of access to loans, including a nonprofit line of credit.
Nonprofits Bylaws Vs. Article of Incorporation
Nonprofits’ bylaws and articles of corporation are considered legal documents. However, there exists a significant difference between them.
An article of incorporation is a document by which a corporation such as a nonprofit is formed. Its provisions include the basic information about the organization, such as the corporate name, the kind of business to be undertaken, and the responsibilities of the directors, among other things. In most states, a nonprofit is formed upon filing the article of incorporation with the Secretary of State. In other words, the state government regulates nonprofits in their various states by ensuring that all nonprofits file a formal document with the proper state authority to set up a tax-exempt organization.
On the opposite, nonprofit bylaws are a set of internal documents highlighting how you will run your nonprofit including when to get a line of credit when there is a temporary cash crunch. Put differently, it’s like an operating manual that provides a clear-cut direction to nonprofits organization. Having a bylaw as a nonprofit is critical for obtaining tax-exempt status from the federal government. In other words, during the application process for 501(c)(3), the Internal Revenue Service (IRS) will request your bylaws and file them along with your article of incorporation and the application. Nonprofits bylaws are internal document that doesn’t need to be filed with the State.
How to Write Bylaws for a Nonprofits
There’s no denying that bylaws are critical in a nonprofit’s formation and smooth operation. Not only do they help you incorporate your nonprofit in your state, but they also help resolve any potential conflict among members of your board down the line. Therefore, founders of nonprofits must fully understand how to write bylaws to get their nonprofits up and running by knowing the essential ingredients to capture while drafting their bylaws.
Writing bylaws for your nonprofits requires due diligence, appropriate consultation, and intensive research. You should be knowledgeable about your local laws and regulation to avoid the situation of having bylaws that run counter to your state laws. Plus, forming a bylaw committee will help you facilitate the process effectively. However, it’s recommended that you get the input of professionals as well as board members to write a great nonprofit bylaw.
How to Set Up and Change Bylaws of a Nonprofit
When setting up your nonprofits bylaws, the salient sections you would want to include are:
1 General Information
This section contains some basic information about your nonprofit, including its name and location.
2 Statement of Purpose
Under this section, you should highlight your nonprofit mission and goals. This will ensure that your nonprofit remains steadfast to its intended cause.
Nonprofit membership may include groups like the board of directors and public members. You should detail the criteria for membership, information about any dues, their rights, and the resignation process.
This section clarifies your nonprofit’s leadership structure. In other words, it outlines how many directors your nonprofit will have, the length of their tenure, and the process of hiring, replacing or firing them.
5 Meeting and voting procedures
This section outlines the processes and guidelines for the Board of Directors meetings. It also highlights the number of meetings within a year and when and where the meeting will occur.
In addition, it prescribes your voting procedures, the number of people that will form a quorum, and the requisite number of votes for a decision to pass.
6 Conflict of interest policy
There should be a provision for a conflict of interest policy in your bylaw. It should include procedures for regulating and judging cases when this policy is violated. Put in another way, the decision of the Board Members should not conflict with the nonprofit’s cause. Your bylaw should be able to check the excess benefit transaction or the personal benefit of directors especially as it concerns obtaining a line of credit.
This section defines whether your organization will have committees, how many, and if these committees will dissolve. It also specifies the function of each committee and the requirement for them to meet.
8 The dissolution process
Here are highlights of how your nonprofit’s assets would be distributed in case of dissolution. The dissolution clause is a legal requirement for nonprofit incorporation in many US states.
9 Books and Records
In this section, you should define how you will keep a complete book and records of accounts of your nonprofits to ensure integrity in the management of finances.
10 Method of amendment
Every nonprofit bylaw should follow the procedure for an amendment to avoid making any sudden changes that will negatively impact the nonprofit’s mission. However, the bylaw should be flexible enough to amend but not too flexible that they can be frequently altered without due consultation and consideration.
However, nonprofits should periodically review and update their bylaws to ensure that they factor in current realities. Before amending your nonprofit’s bylaw, ensure that the changes are in line with your state laws. The bylaw already has made provisions for amendment procedures that should be followed. The amendment procedure may include:
- The required vote required for an amendment to pass
- The difference between voting members and voting directors
- What the notice for board meetings must say.
After the amendment has passed, ensure that everyone sees the new bylaw. In addition, you must inform IRS when you have effected the changes. Afterward, the list of changes made would be sent to the IRS Exempt Organization Determination Office or filed as Form 990 or Form 990-EZ.
Nonprofits bylaws are critical to the successful operation of every charity organization. It gives direction to board members when making decisions, thereby helping the management of nonprofits to remain focused on their cause. In addition, a coherent bylaw can help boost a nonprofit’s image.