Bylaws are the backbone of governance for nonprofit organizations. This document allows nonprofits to consider many different factors that conform to the law or reflect the organization’s current practices. Regular bylaw reviews are key to help the organization remain compliant with the law, reflect flexibility to accommodate the organization’s current operations and avoid a nonprofit lawsuit.
So, where do nonprofit organizations frequently go wrong with their bylaws? And how can these mistakes affect the success and financial future of nonprofit organizations? Let’s take a look.
1. Misunderstanding the Law
A nonprofit is governed by the statute in place in its state of incorporation. The nonprofit corporation act will contain default rules for areas that the bylaws might not address and contain prohibitions. Determine if there are any defaults the organization would want to override by including a specific provision in the bylaws.
Be sure that bylaws don’t permit practices that are prohibited by the state nonprofit corporation act. If so, those bylaw provisions will have no force or effect, and any actions taken pursuant to those provisions will be null and void.
2. Inconsistent Documents
Doublecheck your bylaws for both internal consistency and external consistency. Keeping in line with the articles of incorporation, the state’s nonprofit corporation act, and any policy or governance manual. If your organization is governed or licensed by another state agency other state laws might provide additional mandatory bylaw provisions.
3. Failure to Address Scenarios
Bylaws may contain a certain provision such as removing a board member but leave out any provision covering how that position gets filled upon removal. It is important to take the time to carefully walk through all of the “what-if” scenarios to avoid holes in the bylaws.
4. Insufficient Committee
The use of a bylaw committee is one of the most common ways nonprofit organizations go about the bylaw review and amendment process. If the bylaw committee is comprised of individuals that don’t represent a full cross-section of membership or constituency, they may find some opposition when sending bylaws to the full membership for approval or to the full board of directors. Committees should fully reflect your organization’s population to have more success vetting potential issues early on in the process.
5. Misrepresenting Political Climate
Bylaws should reflect the appropriate balance of power among the members, the board of directors, and the executive committee (or other bodies). Designated bodies, which hold some, but not all, of the power of members or boards of directors, can be especially beneficial in more parliamentary style organizations.
6. Outdated & Inflexible
Eventually, organizations’ missions and purposes are likely to evolve. However, that requires updated documents and developing governance practices that comply with those governing documents.
Frequently, issues arise from copying another institution’s bylaws without regard to the distinctions between the organizations or current law. Encourage compliance by conducting regular reviews of the governing documents and checking the bylaws before electing additional officers or directors, creating additional committees, adopting amendments, and more.
7. Approval & Amendment Process
Amendments generally require members, and sometimes the board’s approval. often, written notice of the proposed amendments will be required to be given a certain number of days in advance of the meeting. Note the required timeline at the beginning of the process, so the organization doesn’t go through the entire process only to realize it will be another year before approval can be obtained due to failure to adhere to the minimum notice period.
Focus on creating a bylaw amendment provision and process that is not overly difficult to execute and that aligns with the organization’s history, culture, and politics to help prevent a nonprofit lawsuit from arising. Another important measure to reduce the risk and severity of nonprofit lawsuits is securing nonprofit insurance coverage, through a program that is specifically designed for the sector.
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