Nonprofit by-laws are legal documents that outline organizational structure. They define how a nonprofit board governs, its composition of officers and their term limits, and the rules by which decisions are made.
Nonprofit by-laws are meant to guide actions and decisions made by the board, but we find that they often sit on a shelf because they become antiquated or irrelevant. Organizations evolve over time, and by-laws should reflect how nonprofits function. Here are some key elements to understand about by-laws to ensure compliance:
- They should be understood and followed by all. Board members have a legal duty to comply with the definitions and regulations as adopted, and to modify them when needed.
- They should be timely, relevant, and ensure that your organization is operating with sound board governance practices.
- They are not a public document the way articles of incorporation are, as they are internal and define structure. However, should questions arise, making by-laws available to an outside entity can add transparency and build credibility with stakeholders.
- They should be written and reviewed by attorneys. However, not all attorneys are experts in nonprofit board governance. While the by-laws may be technically and legally accurate, they may also be functionally and operationally ineffective. Working with nonprofit experts in addition to legal counsel on by-laws is a strong combination.
- They should define operational rules but not dictate operating details. For instance, they should have a statement that the board has the authority to create standing and ad hoc committees, but they should not dictate the details of the committees and how they function.
- They are critically important and should be reviewed regularly. All too often, decades will go by without any substantive review, and that can hamper the organization’s success. We often conduct by-laws reviews with clients when the regulations they have no longer work for them.
- Their review should not be overly burdensome. I can’t begin to count how many clients have shared stories about getting bogged down into hours of board discussion only to stall on making any changes because consensus could not be achieved. Take a step back and bring in an outside perspective who can recommend changes without the complexities of internal reviews.
As your organization plans for 2023, take time to think about your by-laws and if they meet the needs of how your board governs. If not, let us know as we’d be happy to assist.
Article by: Kerri Laubenthal Mollard, Founder & CEO