The 15 Most Common Nonprofit Bylaw Pitfalls: How to Avoid the Traps

more+
less-
more+
less-

Although it might not be the document most commonly on the minds of nonprofit directors, officers or staff, bylaws form the backbone of governance for nonprofit organizations and, therefore, are a very important document. When nonprofits need to consult their bylaws, such as when a membership dispute, concern about an errant director, meeting notice, or voting issue arises, they are often surprised to find that the bylaws are outdated, do not conform to the law, or do not reflect the organization’s current practices. Regular bylaw reviews are key to ensure both that the organization is compliant with the state of the law and that the bylaws reflect enough flexibility to accommodate the manner in which the organization’s operates today.

1. Understand your state's nonprofit corporation law.

A state's nonprofit corporation statute – a nonprofit is governed by the statute in place in its state of incorporation, regardless of where the organization is located – supersedes any provision of the organization's bylaws. The nonprofit corporation act will contain default rules for areas that the bylaws might not address, such as specifying the minimum number needed for a quorum for a director or member vote; and it will contain prohibitions, such as not permitting directors to vote by proxy, among other provisions. Organizations should review the default provisions in their state’s nonprofit corporation act and determine if there are any defaults the organization would want to override by including a specific provision in the bylaws (for example, if the organization wanted to establish a lower quorum for a membership vote than the default number). Nonprofits also need to be sure that their bylaws do not 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. In addition, because nonprofit corporation statutes vary from state to state, it is important when drafting new bylaws to review the relevant state requirements as opposed to simply using another organization’s bylaws as a base since, even if the organizations’ missions and operations are similar, the requirements, prohibitions, and default provisions of the relevant state nonprofit corporation acts may be – and often are – different.

Please see full article below for more information.

LOADING PDF: If there are any problems, click here to download the file.

Topics:  Bylaws, Corporate Governance

Published In: Business Organization Updates, Nonprofits Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Venable LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »