Bylaws play an integral role in nonprofit organizations. Simply put, the bylaws are the internal manual for how the nonprofit will run. For proper functioning of the organization, it is important that everyone on the board understands and follows these rules. The document is not filed with the state, but rather maintained within the nonprofit.
When to Draft Bylaws
With that in mind, the drafting of bylaws is often one of the preliminary steps involved in creating the nonprofit. To accomplish this step, you first need some basic information about your organization, including its name and mission.
Now, the bylaws can be drafted before or after filing your Articles of Organization. The articles effectively form the nonprofit at the state level. However, note that in order to pass the bylaws you need to have the required minimum number of board members approve its provisions and sign the document. For California nonprofits, you need at least two board members to complete this step.
What to Include in Your Bylaws
Keep in mind that the content of nonprofit bylaws can vary from organization to organization. This is because the provisions will be different depending on the needs of each nonprofit. For this reason, it is not recommended that you simply copy a free form template found online.
This advice is particularly important because there are certain state regulations that apply specifically to nonprofits. It’s also helpful to keep in mind that only important governance issues need to be addressed in the bylaws. In other words, you should not include day-to-day operational protocol. An example would be an employee vacation or sick-time policy.
Now, typical bylaws provisions for nonprofit organizations include:
- Basic information about the nonprofit, such as its name and the addresses of all offices
- The purpose or mission of the organization
- The powers of the Board of Directors (what they are authorized to do)
- The number of people on the board (minimum and maximum)
- How board members join (such as being either nominated, appointed, or voted in)
- How board members may be removed
- The number of votes needed for different decisions (majority or unanimous)
- Where and how often board meetings are held
- Whether the nonprofit has any committees
- What officers will serve the organization, as well as how they’re appointed, how long they’ll serve, and their responsibilities (like Chair, Vice Chair, Secretary, and Treasurer)
- When and how the bylaws may be amended
- Record retention policies
- Indemnification and insurance policies
- A conflict of interest policy
Amending Bylaws
Once the bylaws are approved, it is a good idea for the organization to regularly review these provisions. Preferably this review should be done annually. This is because as a nonprofit changes and grows, it may be necessary to amend some or all of the bylaws. This is done in accordance with the rules contained in the document.
Note that an organization must also let the IRS know when one or more of its bylaws have changed. Notice is accomplished by reporting the change on the nonprofit’s next annual tax return (Form 990).