Bylaws are the rules by which your nonprofit will operate. They serve as the operating manual, and they are legally binding. They help your nonprofit run consistently and efficiently, lay down the rules of your organization to limit internal conflict, and educate those who work with your nonprofit to advance its mission and purpose.
What Should be Included in Bylaws?
The language used to draft your bylaws and what you include are important; bylaws that are too rigid may wind up being too restrictive, and ones that are too loose may prove to be more ineffective than effective.
Bylaws may include, but are not limited to:
- Parameters for selecting the board of directors and different officers
- Term periods for directors and officers
- How directors/officers will be replaced if they step down before their term is over
- How donations, bequests, and gifts of stock will be used
- How decisions will be made
- How internal divisions will be addressed
- How bylaws can be changed in the future
- Membership rules (if applicable)
How to Prepare Bylaws
Bylaws are strictly regulated by states, so check local templates as well as with your Secretary of State’s office or other appropriate state business office to ensure that you include all the required details and operate within your state’s nonprofit corporation act. Some states even require that your bylaws be included in the incorporating process.
The IRS doesn’t require specific language, but they will look for certain sections, such as your purpose statement, conflict of interest statement, indemnification clause, and accounting period.
Well-drafted bylaws will meet state and federal requirements and lay out how your nonprofit will be formed and run. Keep in mind that each organization is unique, so there is no one-size-fits-all formula. Think of bylaws as not just a task you need to do to meet compliance standards but also as something that will protect you and help your nonprofit grow and run efficiently.
To help get you started, check out the top three templates online that we have found to guide you when drafting your bylaws.
Draft the Bylaws
Once you have done some research, you can begin drafting your bylaws. You’ll want to be thorough but not so detailed that you wind up restricting your nonprofit in some way. When drafting bylaws, include the following:
- Nonprofit name. Typically, your bylaws will begin with the name of your nonprofit. If you have yet to incorporate and still need to choose a name, be sure to choose a name that is not the same or too similar to that of an existing organization.
- Corporate purpose. When writing your corporate purpose, be sure to include a general purpose and a specific purpose, covering the major activities of your nonprofit. Be careful not to be too specific though, so as not to limit the scope and growth of your nonprofit. This section is important, as the IRS does look for certain language here.
- Membership. Membership can be limited to the board of directors, or it can include members of the public. If your membership is open to the public, be sure to follow the rules and guidelines governed by your Secretary of State (or other relevant state offices). In addition, you’ll want to include membership eligibility, fees (if any), rights each member has, terms relating to resignation and termination, and if any members will be without voting rights, followed by a description of their rights.
- Membership meetings. Include descriptions of when and how different meetings will take place, especially if membership is open to the public. For example, you may have annual meetings, regular meetings, or special meetings. Also, include how members will receive notice for meetings.
- Board of directors. Your board of directors should be described in detail. Include processes and procedures related to director powers, the minimum and the maximum number of directors, responsibilities, qualifications, director meetings, quorum criteria, forfeiture, filling director vacancies, terminating directors, confidentiality, compensation (if any), removing members, voting, and how meetings are run.
- Committees. If your nonprofit will have different committees, you should include a description of each. For example, you might have a finance committee, outreach committee, or executive committee. You’ll want to leave the language around formation open and broad to leave room for adding committees in the future should you need to.
- Conflict of interest. Since nonprofits are subject to strict public scrutiny, conflict of interest clauses are important. In its Form 1023 instructions, the IRS provides sample language and a suggested strategy to ensure that no officer, director, or trustee receives an unfair personal benefit in order to protect the nonprofit from any conflict of interest claims.
- Indemnification. Indemnification clauses are important to ensure that board members and employees are protected as individuals if legal action is brought against the nonprofit.
- Employees. Even if you don’t have employees when you start the organization, it’s a good idea to include a clause for employees in case you hire staff in the future. Include guidelines as to how things should work in your nonprofit to ensure that everything runs smoothly with employees if and when you do have staff helping you run your nonprofit.
- Accounting period. The IRS will be looking for this clause, so be sure to include whether your nonprofit operates on a fiscal or calendar account period. A fiscal year is 12 consecutive months ending on the last day of any month that’s not December. A calendar year begins on January 1 and ends on December 31. You should also include language stating that your nonprofit will keep complete books of your accounts.
- Amending bylaws. As your nonprofit grows, you’ll want to leave room for amending bylaws, should you need to in the future. Include language that describes the process of adopting and amending bylaws.
Your bylaws are important, and you should take the time to draft them carefully so that they both meet your nonprofit’s needs and satisfy state and federal requirements.
Have an Attorney Review the Draft
Since your bylaws are so important, and you’ll want to make sure you use words like “may” and “shall” properly without restricting yourself, it is always a good idea to have an attorney review the draft of your bylaws. An attorney can help you with the language and ensure that you’ve included everything that is required.
Have Your Board of Directors Approve the Bylaws
Once you are ready, the board of directors will need to approve the bylaws. This typically happens at the first board meeting. Each member will review the bylaws and vote on approving them.
Publish and Circulate Bylaws
Once the bylaws are approved by the board of directors, they should be published and circulated to all stakeholders in the nonprofit. You may also consider posting your bylaws on your website to show your nonprofit’s transparency.
Bylaws govern your nonprofit, and they are required for complying with state and federal nonprofit corporation regulations. They can be intimidating to draft, but with one of the templates we recommend and an attorney to look over them, you’ll be able to draft a well-written set of bylaws that not only inform stakeholders and the public about your nonprofit’s organization and governance but also protect the nonprofit. If any disputes or questions arise, you can refer to the processes and procedures in your bylaws to settle them.