They can protect the organization from potential problems by clearly outlining rules around authority levels, rights, and expectations. The board creates bylaws when the organization is established. States have different statutes that apply to bylaws — some dictate specific provisions, while others give more general guidelines.
If your organization operates in more than one state, follow the laws in the state where the organization is incorporated. Once created, an attorney can review them to ensure they meet the legal requirements of the state.
Bylaws are not static, and the board should review them regularly. They should accurately reflect how the organization works and remain relevant. This requires amending the bylaws periodically. Keeping bylaws simple in language and content can help ease this process. Some organizations appoint a task force to review the bylaws and make suggestions for revision to the whole board.
If the board votes to amend the bylaws, mark the revisions on the bylaws and record the date that they were amended. If you made major structural or authority changes, you need to report them in your next Form If there is a contradiction between the bylaws and these other regulations, that part of the bylaws is invalid. For bylaws to be concise, the board also should create comprehensive policies and resolutions. There may be several reasons why an organization does not follow the bylaws, and there are different ways to address this.
For example, stockholders, employees, board leaders, and business members are all people that may benefit from seeing the bylaws. If you are struggling with how to begin writing your bylaws, look no further. The following is an example of some crucial sections you will want to include in your bylaws.
The second article of your bylaw usually contains two sections: nonprofit purpose and specific purpose. The second section of corporate purpose will be the specific purpose of your organization, as well as some of the specific actions or activities your nonprofit will participate in. Membership may involve groups such as the board of directors, public members, or any other members you might have within your organization. Only applicable if your nonprofit contains public members, this article should detail the specifics of where, when, and how public meetings will occur, as well as how the voting process during meetings will work.
This can be broken down into regular meetings, annual meetings, special meetings, etc. This article tends to be the longest because it details all of the many responsibilities of the board of directors. It should contain the control, power, and level of authority that the board will have, any requirements, tenure, or qualifications needed, details on regular meetings and special meetings, information about things like notice, the quorum, forfeiture, vacancies, compensation, confidentiality, removal, etc.
Overall, this section will serve as a way to detail For a full list of every aspect to include, check out this sample bylaw. Because officers can play a vital role to the board of directors, as well as the fact that many states require that you have officer positions, the sixth article in your bylaws should focus on officers.
This article can break down the duties of people such as the president, vice-president, secretary, treasurer, etc. This section of your bylaw should go over the different committees that exist within your nonprofit and the function of these committees. You can also specify what requirements each committee will need to meet, such as how often they are meeting, etc.
The Corporate Staff section of your bylaw should outline the responsibilities of any corporate staff, such as Executive Directors. It can also include information on avoiding conflicts of interest. This article is especially important because the IRS may ask about it or require bylaws to have strong policies related to conflicts of interest. They even have certain language and phrasing that they recommend putting in your bylaws.
Elements such as the purpose of the conflict of interest policy, definitions of terms like financial interest and compensation, an outline of procedures, and other financial-related information should be included in this section. A full breakdown of every element can be found on this sample bylaw.
Indemnification can be defined as a promise that one party makes to cover your losses if they do anything that causes you harm or causes someone else to sue you. This article normally has three sections: general, expenses, and insurance. Article Amendments. The final article in a nonprofit bylaw should be the amendments. This section is important because it will outline the process of amending the bylaws in the future.
This provision should also specify the number of directors needed to constitute a quorum the number of directors that have to be present to vote on an issue and how your board of directors can take action.
Typically, any majority of directors will constitute a quorum , as long as it consists of at least one-third of the total number of directors. Furthermore, any action taken by a majority of directors present at a board meeting at which a quorum is present should be deemed an act of the entire board.
Finally, it should be made clear that your board of directors may take action without meeting if all directors consent to the action and when this consent is set forth in a resolution, which is then signed and recorded in your corporate minute book.
Information regarding when you will hold annual and special meetings of your corporation's shareholders , as well as how notice of these meetings shall be given, the order of business that will be followed, and the quorum required to vote at such meetings, will be specified in this provision. Arguably, the most important requirement of a corporation is its annual shareholder meeting. This may take place as a physical gathering of shareholders held in any location that has been approved by your board of directors.
On the other hand, if your corporation has only one or just a few shareholders, it may be conducted on paper instead. Some states have very specific requirements for shareholder meetings. These requirements can differ according to the type of shareholder meeting and the type corporation.
That being said, your corporation's first shareholder meeting should be called no later than 18 months after incorporation, and subsequently, no later than 15 months after the first annual meeting. Furthermore, your shareholders are entitled to receive notice of the time and place of any shareholder meetings. This notice should be sent no more than 50 and no less 21 days before a meeting. With regards to voting at a shareholders meeting, each shareholder is usually entitled to one vote for each share he or she holds, unless your articles of incorporation say otherwise.
Furthermore, a shareholder is normally allowed to appoint someone else a proxy to attend a shareholder meeting and vote on his or her behalf. As mentioned above, your board of directors will play an important role in corporate governance. Inside of your board of directors you can also have smaller groups of directors committees that perform very important tasks.
This provision pertains to:. Committees, which are usually established and dissolved by a corporate resolution , consist of board members who are put together for specific purposes. The idea is for the corporation to take advantage of the expertise possessed by certain members of its board of directors in order to solve problems or address issues that require a certain amount of specialized knowledge.
There may be certain members of your board of directors that have very valuable skill sets. For example, if you have a financial expert on your board, you may want to put him or her on a committee that deals with financial problems.
Likewise, if you have a fundraising expert on your board, he or she can lead the fundraising committee. A committee can, therefore, be created around a board member who has the specific skill set needed to solve a particular problem. Its function is not to make binding decisions but to recommend to the board what decisions should be made. There are essentially two types of committees that can be established by your board of directors: standing committees or ad hoc committees.
Standing committees are committees that are running all the time, while ad hoc committees are those that are created around a given issue or problem and then dissolved when the issue has been resolved.
Your corporation should not do business until it has issued stock to its shareholders.
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