Every corporation must have a set of bylaws that provides for its internal management and regulation. A sample set of bylaws is included in the Appendix that may provide guidance to those seeking language for bylaws that would be appropriate for a newly created nonprofit organization.
Each state has individual requirements for the content of bylaws for nonprofit corporations, although these requirements tend to be similar. Beyond legal requirements, corporate bylaws are a necessary and important document, and great thought and care should be exercised as to what will be included in them.
Typical bylaws include provisions governing the following 25 internal procedures and policies of the nonprofit corporation:
1. The purposes of the corporation, consistent with any federal tax law limitation or state laws governing lobbying or other activity
2. Limitations of liability of directors, consistent with state law
3. Types of officers
4. Terms, powers, and succession of officers
5. Location of principal office
6. Whether the corporation will have members, or whether all powers will be vested in a board of directors
7. How directors will be selected and how vacancies will be filled
8. How many directors there will be
9. Length of terms of board of directors, limits on consecutive terms, and if and how such terms will overlap with other board members
10. Terms under which a member of the board of directors can be disqualified
11. Conditions under which the annual meeting and other regularly scheduled board meetings are held
12. How unscheduled meetings of the board may be called
13. Terms under which notice of board meetings must occur
14. What constitutes a quorum for the transaction of business
15. How many directors are required to approve an action
16. Whether actions of the board may be ratified through the mail or by conference call, or require directors to be present at a meeting
17. Power of the chairperson (or president) to appoint committees, and to provide for rules, powers, and procedures of such committees
18. Whether alternates may be empowered to represent directors, and who selects them
19. Who is responsible for preparing board meeting minutes
20. Who is responsible for keeping and reviewing the corporate books, and dispersing corporate funds
21. How amendments may be made to the bylaws
22. Terms and conditions regarding compensation, if any, paid to directors
23. What committees are authorized, and what powers and duties they have
24. The terms under which the corporation will be dissolved
25. Which, if any, parliamentary procedure will be used at board meetings.
Each state has laws providing for some minimum standards with respect to nonprofit corporation bylaws.
Most of these laws provide rules on many of the above bylaw options in the absence of explicit directions in the nonprofit corporation’s bylaws. Thus, it is important to place provisions in the bylaws that will be intended to supersede these statutory legal guidelines, if the directors feel that the guidance provided in law is not acceptable to the corporation.
Among the bylaws provisions that deserve the highest consideration and thought are the following, with some comments about the issues they raise:
A quorum is the minimum number of members or directors required to be present for a meeting to be held for the legal transaction of business. The purpose of a quorum requirement is to assure that actions are taken by a representative number of duly authorized participants rather than by an elite few. Standard advice, in the absence of relying on any statutory requirement, is to set the quorum at the minimum number of people who will be expected to attend a meeting, taking into account emergencies, adverse weather conditions, or conflicts with competing meetings. If the bylaws permit it, board members may participate in meetings and be counted as part of a quorum if they are in communication by speaker phone or by conference call.
Since actions cannot be taken legally at board meetings without a quorum present, it is best to begin with a conservatively low quorum requirement. Then change the bylaws to increase that number as appropriate. Otherwise, it is possible that the corporation will never have a quorum for its meetings, even if the sole purpose of the meeting is to change the bylaws to decrease the number of directors constituting a quorum.
Boards need to vote to formally demonstrate that they have taken actions. Many organizations can be effectively run by consensus rather than by formal voting, but even the most congenial and tolerant boards will eventually face issues that will divide them. In the absence of a provision in the bylaws, action may be taken at a board meeting with the approval of a majority of directors who are present at the meeting. Nothing prohibits a two-thirds vote from being required to ensure that actions are closer to representing a consensus. A two-thirds vote may be suggested for changing bylaws, or for changing membership dues requirements. Generally, a majority vote is sufficient for most routine board decisions, and avoids the inability to take positions and actions that can occur as a result of a two-thirds voting requirement.
Many organizations are attracted to the democratic notion of offices being opened to all. With such a policy, any director can run for an office, ballots are prepared, and the winner is selected by the majority (or plurality) of voters from the board of directors or the membership at large. Other organizations feel that democracy puts at risk an orderly succession and threatens the existing power structure. Orderly succession can be accomplished by providing for a nominating committee, appointed by the chairperson, which selects a slate of officers. This slate is then perfunctorily approved by the full board. Both systems have their advantages and disadvantages.
Some organizations utilize a third alternative that combines the two. The nominations committee recommends a slate of candidates, but the procedures permit other candidates to run, as well.
Board meetings may occur at regular intervals, but issues arise in the interim that demand immediate attention. In such cases, it is valuable to have a mandated procedure for taking legally legitimate actions in the absence of board meetings. The mechanism to accomplish this is the executive committee, provided for in the corporate bylaws. While the executive committee typically is comprised of the corporation’s officers, many state laws authorize executive committees comprised of one or more directors appointed by the board. Typically, by law, the executive committee has all of the power and authority of the full board with the following exceptions:
1. The executive committee cannot fill vacancies on the board.
2. The executive committee cannot adopt, amend, or repeal bylaws.
3. The executive committee cannot have powers inconsistent with the resolution passed by the board establishing it.