Nonprofit Bylaws – The Dos and Don’ts

A board member recently ask me how often should the bylaws be reviewed. I answered at least every three to four years to ensure that the informaton they’re putting on IRS Form 990 is accurate.
 
Bring up the subject of a nonprofit’s bylaws and you are sure to get an interesting response.  For many nonprofit’s, their bylaws are just some forgotten document, full of legalese, gathering dust in a file cabinet somewhere.  No one on the current board of directors knows who prepared them, nor what any of the provisions mean.  They certainly are not referring back to them for any reason.  For a nonprofit that actively uses its bylaws, the bylaws can be an interesting glimpse into the organization’s governing psyche.  
Introduction
One fact is sure:  a nonprofit’s bylaws are considered a legal document that dictates how the organization must be governed.  Failure by a board to follow the stipulations outlined in the bylaws can have devastating consequences to the organization…and potentially even to the board members themselves.  Since bylaws are such a big deal, it stands to reason that what they contain and how they are used should be taken extremely seriously.  But what about that?  Let’s take a look at some Dos and Don’ts regarding nonprofit bylaws.
Do
Get assistance in drafting or amending your bylaws from an expert experienced in nonprofit matters.  Two words of caution here:  1)  Don’t assume your attorney understands nonprofit issues.  We have helped fix countless attorney-prepared bylaws, and 2)  Bylaws are a legal document, so using a non-attorney professional means you are getting self-help assistance.  It is still the board’s responsibility to have input into the provisions and to vote to adopt the final product.
Do
Stick to the basics.  It is a good practice to think of your bylaws much like the US Constitution.  Like the Constitution, your bylaws should deal with only the highest level of governing issues such as:  Organizational purpose, board structure, officer position descriptions and responsibilities, terms of board service, officer/board member succession and removal, official meeting requirements, membership provisions, voting rights, conflict-of-interest policy and any other non-negotiables that your governing body deems necessary.  One critical element often erroneously omitted is the provision for amending the bylaws in the future.
Do
Know what is in your bylaws.  As a board member, you have a duty to understand what each and every provision means.  If there are provisions you do not understand, ask another board member or consult a professional.
Do
Follow the provisions religiously.  You not only have a duty to understand your bylaws, you are legally accountable for following them.  This is not optional.  A court of law will side with your bylaws in any dispute brought by another board member, an employee, volunteer or recipient of services who may have a grievance.
Do
Keep your bylaws relevant.  Times and circumstances change…and your governing document should reflect those changes.  If your bylaws need to be amended to reflect current realities, do it.  Make sure the changes make long-term sense (see below) and follow the amendment procedures as outlined.
Don’t
Treat your bylaws as a policy and procedure manual.  We have seen bylaws that contain everything from employee vacation rules to the organization’s anti-smoking policy.  These are totally inappropriate for bylaws.  Create a separate policy manual for management purposes.  Again, think Constitution vs. US Code (laws).
Don’t
Include provisions that tie the hands of future boards.  Think long and hard about the downstream consequences to all provisions.
Don’t
Fail to review the bylaws.  At least annually, all board members should re-familiarize themselves with the provisions.  This will go a long way toward preventing costly errors.  New board members should be provided with a copy immediately upon installation.
Conclusion
Proper use of an organization’s bylaws not only provides the necessary structure to effective governance, it eliminates the willy-nilly guesswork so common among ineffective nonprofits.  Good governance establishes a foundation for good work.

Make or Break? The Unmotivated Board

Author: StarChapter
 
What is the common denominator between a non-profit association chapter and a publically traded company? The executive layer steers the path to success or failure. In a survey by the Canadian Society of Association Executives (CSAE), researchers found a clear correlation between engaged boards and organizational success. This is not a surprise…
 
Boards make or break their chapters. In fact, it is not unusual for chapters to cease activity simply due to unengaged board and lack of enthusiasm among members. Serving on the board can be hard, and without having the right tools to manage the various tasks, the board might fail in generating growth and offering a real value to their members.
 
Watch out for these 7 signs to identify an unmotivated board.
  1. The number and quality of events drops dramatically
  2. Board meeting take too long and members show up late or unprepared
  3. Work isn’t split evenly – few board members are doing most of the work and executing most of the decisions
  4. The chapter’s website isn’t updated regularly and contains irrelevant or outdated information
  5. Simple decisions cannot be easily determined
  6. Members receive emails containing old information
  7. Membership has declined
Members to association chapters are what investors are to a publically traded company. Whether you are on the board or a member, recognizing these signs might save the chapter. In these cases, it might be the time for a mass reshuffle and personally volunteering. Remember, flourishing association chapters contribute to their members in many ways: networking, career opportunities, community involvement, personal development, accreditation and much more. Your chapter’s mission is no different.

501(c)(3) vs. 501(c)(6): What You Need to Know

These two basic nonprofit designations are common within the association sector. While their goals can be quite similar, their structures are significantly different. Here’s how.

The 501 nonprofit designations set by the Internal Revenue Service are some of the most important classifications for associations to know about, as they spell out what a nonprofit organization can do within its regulatory structure.
 
The two most common designations in the association space might fall into two categories:
  • 501(c)(3).An organization generally focused on greater-good goals such as religious, educational, charitable, or scientific needs.
  • 501(c)(6).A business league or chamber of commerce. Associations generally fall under this category.
Beyond designating what these organizations do, these specifications also help to broadly articulate how they can legally operate.
 
Gene Takagi, principal of NEO Law Group and contributing publisher for the Nonprofit Law Blog, has written about this subject at length. He said that the differences come down to the organization’s mission, and who that mission benefits.
 
“The main distinction between the two types of exempt organizations is related to the purpose of the organization and its intended beneficiaries,” he said in an email.
 
He noted, for example, that while a 501(c)(3) is generally focused on the charitable needs associated with a larger mission, a 501(c)(6) focuses on improving the common business interests of the collective.
 
Some of the most important differences between a 501(c)(3) and 501(c)(6) concern tax deductions. Charitable organizations, for example, allow donations to be deducted as qualified charitable contributions, while payments to business groups, such as membership dues or attendance fees, are tax-deductible as traditional business expenses.
 
Another key difference is political activity—which is usually barred for 501(c)(3) groups but allowed with a degree of transparency for 501(c)(6) organizations.
 
“These differences impact their respective permissible and impermissible activities and the deductibility of contributions or payments,” Takagi said.
 
Depending on your group’s focus, other IRS designations may make more sense.