Are you required by law to have bylaws?
You’ve done your research on how to start a nonprofit and have found yourself stuck on one key piece of the puzzle: nonprofit bylaws. Creating your bylaws are a tedious but necessary step to realizing your dream of starting your open nonprofit. Every guide you’ve read says you need them but many have left out the important details. But first things first, are you really required to have bylaws as a nonprofit?
Is a nonprofit required to have bylaws?
While the Federal tax law doesn’t require nonprofits to have bylaws, many states do require nonprofits to have bylaws in order to incorporate.
If you’re hoping to file for tax-exempt status by becoming a 501(c)(3) with the IRS, you will need nonprofit bylaws on the books. As a general rule of thumb for any organization, it’s better to have bylaws than not. You can think of your bylaws as your operating manual or playbook.
Bylaws outline the rules, procedures, and practices your nonprofit has set in place. This is a benefit for a couple of reasons. It keeps things moving, it prevents confusion or disagreements, and it acts as your guide as your nonprofit expands.
How to write your nonprofit bylaws
Normally, we’d include a template for you to download and send you on your merry way.
But it’s important for us to stress in this section that your nonprofit bylaws are a legally binding document. Because bylaws are used to file for tax-exempt status and incorporate on the state level, it’s highly encouraged that you consult a lawyer or procure legal services to review and finalize your bylaws.
A lawyer can help you ensure that your bylaws follow all state and federal regulations, as well as help safeguard your organization from any potential conflicts of interests or issues. While it is possible to write your bylaws without the help of a lawyer, the time, frustration, and potential liability you’ll save is worth it.
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What should you include in your nonprofit bylaws?
There is no universal standard for how nonprofit bylaws should be written. Every organization is different and will require a unique corporate governance structure. The suggestions below are just a sampling of provisions you can include in your bylaws.
1. Name and purpose
This is the foundation of both your organization and your bylaws. You should clearly outline what your organization’s name is, what your purpose is, and include a mission statement if possible. It might seem redundant to include this in your bylaws, but remember that this information is for people who are unfamiliar with your organization.
2. Election process, board members, officer information
The next section in your bylaws should include information about your organizational structure. In this section, you’ll outline everything there is to know about the board election process, the length of officer terms, and more.
You’ll want to include details on what happens in the case of officer resignation or removal. For example: if a board member needs to resign, you might include a provision that registrations must be given in writing and approved at the next board meeting. Likewise, you might outline what percentage of active board members must approve the removal of another board member.
If your nonprofit offers memberships, this is the section to outline those details. Highlight the requirements for membership, dues, rights of memberships, voting criteria for members, and what constitutes the termination of membership. You can also use this section to outline the membership benefits.
This section should be just as detailed as the one covering your board members. Take the time to make clear anything and everything that a potential member might need to join before joining your organization.
4. Board structure
This is different from the section outlining elections and board term limits. This section is where you’ll want to explain how your board will be structured, eligibility requirements, what sub-committees there are, and more. This section will also cover the qualifications and duties for all major officer roles.
Think of the election process section as the outline for how you elect board members and the board structure section as the outline for who you choose and what they’ll be expected to do.
5. Document retention policy
Record-keeping is vital to the success of your nonprofit. You never know when the IRS might require specific financial information from years previous. That’s why including a clear document retention policy is important.
This policy should outline what documents need to be kept, the length of time they need to stay on file, and how documents and records are stored. In many cases, nonprofits choose to utilize a document database software to keep all of their records digital. The benefit of this is that you can keep everything indefinitely without worrying about losing things in a move, to a disaster, or due to negligence.
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6. Conflict of interest policy
If you’re a public charity or a 501(c)(3), your board of directors is required to be made up of independent individuals. By law, no more than half the board can be related to each other by blood, marriage, or business. Your conflict of interest policy should outline the disclosures your board is required to make before joining to help ensure you are following the letter of the law.
7. Meeting guidelines
In order to maintain proper meeting decorum, you’ll want to outline how your nonprofit meetings will run. This section should include what quorum is required to run a meeting (a quorum the minimum number of members required for official business to be conducted). You can also use this section to outline meeting agendas, the frequency that meetings will take place, and the structure.
8. Amendment of bylaws
As your organization grows, your bylaws may change. You should include a section of your bylaws exclusively for amending the bylaws as things change. Your bylaws are a living document and changing them should be easy when necessary.
You can start by simply stating that your bylaws are subject to change should the need arise and include any information about what percent of your board of directors are required to approve an amendment in this section.
9. Dissolution of the organization
Should the unfortunate situation arise where you have to dissolve your nonprofit, this section is important to have. This section will outline what happens to the funds your organization has on hand in the case of dissolution.
Do the work now, avoid the headache later
Creating your bylaws isn’t fun and it certainly isn’t easy: but it is necessary. Don’t skip this step or phone in the process in the hopes of speeding things along. Your bylaws are the foundation of your nonprofit. Take the time to craft them with care and save yourself the headache later on.
Ready to learn more? Check out our guide on how to start your own nonprofit or read this piece on nonprofit statistics.