Bylaw amendment requires a tactical and legal understanding of nonprofit governance and procedures.
Moving from in-person to virtual board meetings come with many challenges and logistical questions. One of those questions was whether or not state law deemed it legal to hold virtual meetings. It appears that state governments have gotten this right and updated their statutes during the past 20 years to explicitly permit remote and virtual meetings.
In order to hold virtual meetings, most nonprofits have to amend their bylaws. Changing bylaws for a nonprofit organization requires coordination and security, especially in a remote setting.
Knowing how to amend bylaws requires legal and reporting expertise. After all, a nonprofit bylaw is a legal document that defines the procedures for running an organization. Bylaws are usually densely packed with information about elections and terms. Depending on the amendment, new bylaws might need to be refiled with state agencies and the IRS.
Understanding the process of bylaws amendment, even at a high level, can make the task less daunting. Bylaws amendment is important to understand so boards can see a clear path of project management throughout the process and it is how most major organizational reforms are started.
What Are the Board Bylaws?
Board bylaws typically look different depending on the type of organization and its objective, but usually, they are a detailed legal record that documents how to conduct business. The document should be uniquely crafted to address the specific needs, purpose, and structure of your individual organization. That said, there are commonalities in the basic components of bylaws and how they are used.
Board bylaws usually lay out the various rules and procedures for how boards function. Understanding what is a bylaw is vital when it comes time to create amendments to bylaws or the difference between bylaws and articles of incorporation.
What Is the Difference Between Bylaws and Articles of Incorporation?
It’s important to understand the parameters of bylaws amendment and how that process intersects with other legal documents in your organization. So are bylaws the same as articles of incorporation?
Even though they sound like the same thing, they are not.
- The Articles of Incorporation include general details about your organization and define its foundational principles.
- The Bylaws spell out the detailed rules and procedures for managing the organization.
How the Board Bylaws Are Used
Bylaws essentially serve as operating manuals for an organization’s board of directors. They are used to guide directors in their decision-making processes, including conducting meetings, managing board business, holding votes, and resolving disputes. The document also defines how board members and officers are elected and their service conditions.
While federal tax law doesn’t mandate bylaws for most organizations, many states require nonprofits and companies to establish them, and most banks will request them for organizations seeking loans. Either way, having bylaws is recommended to provide clarity and transparency on an organization’s internal operating rules.
In addition to offering guidance for directors, board bylaws serve as a primary tool for addressing conflicts or disagreements — either internal or external. When a dispute arises regarding whether proper public notice was given prior to a board vote, the board chair or staff attorney will reference the bylaws to prove or disprove the allegations. Well-written bylaws also can help shield organizations from potential problems by clearly defining board procedures, rules, and responsibilities.
The Key Components of the Board Bylaws
Strong board bylaws are detailed but not overly restrictive. They should provide a framework for standard operating procedures without placing undue limitations on the board should changes need to be made.
For example, a bylaws document might indicate that board meetings occur the first week of each month, but specifying the day as the first Monday of each month inhibits changing it to another day should the need arise for any number of reasons (i.e., dangerous weather conditions, a power outage, public health emergency, or an inability to reach a quorum). Such a change would require a board vote to revise the bylaws.
Common elements of a board bylaws document include:
- Basic organization information, including the organization’s name and primary location address
- Statement of purpose that clearly articulates the organization’s mission and purpose
- Board structure, including an outline of board organization, a range for the minimum and maximum number of directors, professional versus community representation requirements, and term limits, if applicable
- Board officers, including titles (president, vice president, secretary, treasurer, etc.), general responsibilities for each position, and terms
- Committee rules, such as how to form new committees, and information on all standing committees, their make-up, and duties
- Compensation and indemnification policies outlining how directors, officers, and staff are paid and to limit directors’ legal liability
- Election rules governing how directors and officers are elected or appointed
- Process for removing directors or officers, including the vote count needed and causes — such as unethical behaviors, conflicts of interest, poor performance, or other issues
- Voting rules specifying procedures for holding a vote and quorum requirements to govern how many board members must be present for a vote to occur
- Amending bylaws procedures, such as the required notification, documentation, and majority vote required to revise, add, or delete a portion of the existing bylaws
- Membership rules (if applicable), including eligibility guidelines for membership and member rights
- Meeting guidelines outlining how frequently meetings should be held, notification requirements for upcoming meetings, and meeting procedures
- Conflict-of-interest policies define what constitutes a conflict when an individual’s personal interests (financial, familial, or otherwise) could interfere with organizational interests
- Dissolution clause outlining the steps for breaking up or closing the organization
- Other standard operating procedures, such as fiscal year parameters
How to Amend Your Company’s Bylaws
Amending bylaws requires a strategic plan of action. Like any project management, mapping each step, timing, and strategic value is critical. It is especially important to know how changing bylaws for a nonprofit organization differs from a for-profit structure. Below is a five-step system that you can use to get started.
1. Consider When to Update Your Bylaws
Timing is an important part of changing a nonprofit’s bylaws. You must consider the amount of time it will take to amend the bylaws, when they need changing, and the estimated timeline for filing and notification of proper authorities.
So when should a nonprofit review its board bylaws? An organization should review its bylaws at least during moments of transition or growth. An annual review is a good practice to keep everything up to date. If you are transitioning into virtual board meetings, that would also be an appropriate time to revisit your bylaws.
When it is time to revisit the bylaws, take the opportunity to update a few items with each review. Start by editing the following if they have changed:
- Number of directors
- Offices and titles
- Quorum requirements (this may change with virtual attendances)
- Director terms
- Methods of communication or messaging
- Virtual meeting rules
Using these as a checklist is a helpful place to start when you are reviewing bylaws. Annually adjusting these portions of your bylaws can help your organization stay consistently up-to-date and less likely to need massive rewrites every few years. This will also keep the bylaws top-of-mind for your directors.
2. Review Your State’s Laws
Having a general understanding of your state laws regarding compliance and bylaw amendment can save you a lot of time down the line. Knowing the number of required directors, for example, changes by state and knowing these requirements ahead of time keeps you from having to duplicate any efforts.
It is also important to know if there are any special requirements for virtual meetings in your state. For most companies and nonprofits, you’re almost certainly in the clear to hold a virtual meeting when it comes to the law. But don’t assume. Check your state’s laws in our database, and make sure you’re in full compliance.
3. Draft the Amendment
Knowing how to write an amendment for bylaws is an important step before you even begin the draft. When you are ready to make changes it is often helpful to have the current state and the revisions identified, then find a bylaw amendment template.
CorpNet, a document filing service, has a great bylaw amendment template to help you get started.
4. Review and Follow Procedures for Updates
Reviewing and sticking to the procedures you have in place for changes to bylaws can keep you from missing any steps and in compliance with the law. There are a few repeated rules to keep a wayward eye out for when updating nonprofit bylaws.
Take note in your own bylaws if:
- A majority or unanimous vote is needed to pass amendments
- If board members receive a notice of the amendment before the vote
- If a special meeting needs to be scheduled to review the amendment
- Rules around voting remotely vs. in-person
5. Submit Amendments to Government Agencies
Lastly, when amending an organization’s bylaws, follow the proper channels for submission to government agencies. It is especially important to make updates with the IRS when required. The IRS needs to know if there are any structural or operational changes. Annual tax filing is an appropriate place to notify the IRS of such amendments.
Annual filings might cover all the changes in some states but not in others. Occasionally, a certificate of change or amendment to formation documents needs to be filed with the state. Your Secretary of State can clarify the specific requirements for your location and circumstance.
Board Bylaws Are a Living Document
Bylaws are intended to be evergreen documents, but that does not mean they cannot change. In fact, bylaws can and should be updated and amended over time as an organization grows. A routine review can ensure this growth continues to align with federal, state, and local laws.
Having robust board management can help streamline the process of amending a board’s bylaws, and provide a centralized location for storing and maintaining them. OnBoard’s Agenda Builder, for example, can be used to help create and update a board bylaws document. OnBoard’s Roles and Terms Management tool also can help boards define the responsibilities and term requirements for individual board members and officers.
Overall, having comprehensive and up-to-date board bylaws is essential to providing accountability for board directors, officers, and administrators. They provide a legally binding blueprint for how the organization is governed.
About The Author
- At OnBoard, we believe board meetings should be informed, effective, and uncomplicated. That’s why we give boards and leadership teams an elegant solution that simplifies governance. With customers in higher education, nonprofit, health care systems, government, and corporate enterprise business, OnBoard is the leading board management provider.
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