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Bylaws for non-profit organizations conforming to state codes

drvideo@comcast.net
 

Volume 9, Issue 2, Dec., 2003

Internet Newsletter Volume 9, Issue 2

 

BYLAWS FOR NON PROFIT ORGANIZATIONS  AND THEIR CONFORMITY TO STATE CODES

 Volume 9, Issue 2

 Part I

By Robert McConnell Productions

         

            Many of us are members of organizations that are incorporated under state nonprofit codes.  But most of us never think to read these codes to see if our governing documents conform to them.  We believe that we can write or revise bylaws without giving any consideration to the requirements of the state nonprofit codes.  How wrong we are.

            The following article will explain how to read the nonprofit codes, what to look for in these codes, and then how to conform you bylaws to the state codes.  This article will use the Washington State Non Profit Act and a church’s bylaws that are currently being  revised to illustrate how you can bring your bylaws into agreement with your state codes.  Also, you will see how to bring your bylaws into conformity with the standard way of writing bylaws according to Robert’s Rules of Order Newly Revised, 10th edition.

 

Why organizations incorporate.

            When an organization is founded, the founding members usually know why they need to incorporate. Or an attorney recommends that they incorporate.  But as new members come, they may know that they are a non profit corporation, but they don’t know why, or what the responsibilities are that go with being a non profit corporation.

            Organization incorporate as non profit

1.      because it limits personal liabilities for those serving as directors

2.      because the organization can apply for a IRC 501(c) (3) state and federal tax exemption – no corporate taxes as well as other tax benefits and exemptions

3.      because they can receive both public and private grants

4.      because they receive other benefits such as lower postal rates, advertising rates, and other discounts

 

            However, with these advantages also come responsibilities.

1.      There is the task of writing articles of incorporation and the paper work that goes with it. 

2.      Non profits also have to file annually a report with the Secretary of State.  This is usually the names and addresses of officers.  It is sent in with a small filing fee.  It could also be minutes of the annual meeting or a written report of its activities.  Check to see what your state requires.

3.      Non profits also have to file informational tax returns with the IRS.  There may be some exceptions, like a church.

4.      The Board of Directors also has the responsibility to see that its activities stay within the requirements of its 501 (c ) (3) status.

           

            Unfortunately, many people who serve on these boards have no understanding of these things, and merrily go there own way.  At some point in time it could become a big problem for the corporation.  A book that we have found helpful to understand all this is called, “How to Form a Nonprofit Corporation, obtain your IRS 501 (c) (3) tax exemption and limit your personal liability”.  It is published by Nolo, a company that produces information books on “law for all.”  You can call them at 1-800-992-6656 for more information about this book and other books that they sell. 

 

Basic principles of reading non profit codes.

            In reviewing and working with the Washington State nonprofit codes, certain principles emerge in reading them.

 

First the code spells out what a nonprofit is to be and how it should operate.  In many of the codes it will state a fact and then say “the articles of incorporation or bylaws may prescribe or provide”.  This term gives you the option of doing what state law prescribes or it gives your organization an option to do something different, as long as it is written in either the articles of incorporation or the bylaws.

 

 Second,codes will provide something, then say that the articles of incorporation or bylaws may do something different, but then it sets some minimum standard.  For example in the Washington State Non Profit Act, concerning setting the quorum for the board of directors, it gives some options, but then states “ in no event shall a quorum consist of less than one-third of the number of directors so fixed or stated.”

 

Third,the corporate codes in certain places state what a corporation has to do. Neither the articles of incorporation nor the bylaws can conflict with it.  In this case, it is important to put these provisions be in the bylaws with a footnote referencing the state code. This lets the members know that these provisions can not be changed. 

 

 

Non profits and bylaws.

            With these points in mind, this article will now look at bylaws through the lens of the Washington State Non Profit Act.  Using the order used in Robert’s Rules of Order Newly Revised, 10th edition, the article will explain what Robert’s Rules requires and then what the Washington State code requires.  It will also tell how one organization is trying to bring its bylaws into agreement with the Washington State code, the problems it has encountered and how it is resolving these problems and still complying with the state code. 

            Different state codes will have different requirements.  However, many state codes have similar or the same requirements.  The examples given in this article may not apply to every nonprofit corporation. The specific examples will apply only to those who are incorporated in the state of Washington.  However, all who are non profits can gain some ideas about revising their bylaws and bringing them into agreement with their non profit acts by reading this article.

 

Where to begin.

            The first thing a nonprofit needs to do is get a copy of their nonprofit act.  Usually the Secretary of State can tell you where to get a copy.  Many states have the entire act on line.  Next, you will need to read them—from beginning to end.  Highlight the information that pertains to your organization.  Then read your articles of incorporation. The articles of incorporation should have only those necessary provisions to get an organization incorporated.  The details should be left to the bylaws.  In our example organization, which happens to be a church, the articles of incorporation state the name of the church, its purpose and the original names of the incorporators. The details are in the bylaws.  After reviewing the articles of incorporation, then review the bylaws. 

            Next go through the nonprofit code, and, using post-it-notes, write down and post to each section of the code, if it applies to your organization, how the code affects the bylaws and what changes need to be made in the bylaws. 

            Then using the outline of bylaws as given in Robert’s Rules, put under each article the code requirements and what changes need to be made in the bylaws. 

                        If your organization is affiliated with a parent organization, too, or has to consider other laws, for example a Home Owner Association may also have to consider laws concerning it, these too should be included in considering what should be put in the bylaws. 

            If you are under the government of several codes or other governing documents then read the first newsletter written on this page to learn about the ranking of documents. It would also be helpful to read pages 570 to 573 of Robert’s Rules of Order Newly Revised 10th edition to see how to apply the principles of interpreting bylaws.  This works for state codes, too.

            Here’s an example of how two State Codes apply to a Home Owner’s Association in the state of Washington.  The Non Profit Code includes information about  board of directors, its meetings meetings and its quorum.  But it does not say that board meetings are to be open to the members.  Therefore, we can conclude that they are held in executive session.  This means that only the members of the board can attend.  However, in the Home Owner’s Association Act of the state, it specifically says that the board meetings are open to the members.  The bylaws then must include that board meetings are open to members and some provision for notifying members of the board meetings.  An HOA in revising its bylaws would have to look at both codes.  The specific rule in the HOA Act takes precedence over the general code in the Non Profit Act.     

            This article will now take up the explanation article by article and what needs to be considered before writing or revising the bylaws. The following is the standard out line found in the Robert’s Rules of Order for bylaws.  This newsletter will take up each bylaw article and explain according to Robert’s Rules and the Washington Non Profit Act what should be in the bylaws of your organization. 

 

ARTICLE I

NAME

            The first article of bylaws is the name of the organization.  It is usually stated this way:

            The name of this organization (church, homeowners association, etc.) shall be the XYZ Association.

 

            Now Robert’s Rules of Order Newly Revised, 10th ed. says that if an organization is incorporated the bylaws can skip this article because if the name is in both places then a discrepancy may appear.  However, in reality, it is difficult to skip this step unless the articles of incorporation are at the front of the bylaws.  The National Association of Parliamentarians, which is incorporated, has put this as the first article in its bylaws.  Just be careful that the name is the same as in the articles of incorporation.

            Now let’s look at what state codes require of those choosing a corporate name.  In the state of Washington the code prohibits using the words “incorporated”, “company,’ “corporation,” limited partnership,” partnership,” or Ltd., or any abbreviation thereof, but may use “club,” “league,” “association,” “services,” “committee,” “fund,” “society,” foundation”, “…….., a non profit corporation,” or any name of like import.

            However, in other states organizations must include “incorporated, company,” etc.  In some states the name must be in English.  In many states, the code states that the corporate name “may not imply purposes contrary to those contained in the Article.”

            If you are in the stages of forming a nonprofit corporation, check the codes in the state in which your are incorporating to see what your name needs to include or exclude.  The Nolo book can help you with this information and so can an attorney.

            The most important point is that the name in the bylaws must be the same as it is in the articles of incorporation.

 

ARTICLE II

PURPOSE

 

            A requirement of incorporation is that the object or purpose be stated in the articles of incorporation.  Robert’s Rules of Order Newly Revised 10th edition (hereinafter abbreviated to RONR) states that this article is unnecessary in the bylaws if it is in the articles of incorporation because a discrepancy may appear in the bylaws.  The National Association of Parliamentarians (NAP), even though its purpose is in its corporate charter, has put its purpose in the bylaws, too.  Since members do not refer frequently to the article of incorporation, this writer believes it is best to put it into the bylaws accurately.  If the purpose is in both the corporate charter and the bylaws, then members must be informed that the purpose in the bylaws can’t be amended unless it is amended in the articles of incorporation first.  The purpose could be footnoted in the bylaws stating this fact.

            RONR states that the purpose should be general because it defines the scope of the types of business that can be brought before the assembly. To consider any business outside the purpose of the organization, it takes a two thirds vote just to consider the motion.  For example, if an organization were established as a place to rescue dogs and cats, it would be out outside the object of the organization to rescue cows, goats, or birds.  However, if the object was to rescue all animals, then motions concerning goats and cows are in order.

            In the church organization that is amending its bylaws, the bylaw committee decided to include the corporate purpose in the bylaws.  The committee also decided to write a “spiritual purpose” for the church.  Usually the “purpose” is one long paragraph.  The committee decided to have two sections. The first is “Section 1. Corporate Purpose.”

The second is “Section 2. Spiritual Purpose.”  This is unusual to have the purpose in two sections.  But the bylaw committee felt that the corporate purpose was a legal description of what the church was to do.  The committee wanted to define the church’s spiritual mission and to protect the church body from motions that had to do with secular activities.

 

ARTICLE III

MEMBERS

 

            In RONR, the article on membership sets forth the classifications of members, the rights of each class, and the manner in which they are selected for membership.  Any provision for dues, the time the members must pay them, when dues are consider in arrears, and how a member is dropped for nonpayment of dues.  Any additional assessments and other membership requirements are also included in this article.

            A corporation may have members or no members at all.  Not to have any members may seem preposterous.  Yet there are some corporations that have only a small board of directors and no members. 

            In the Washington State Nonprofit Act, a corporation is required in the articles of incorporation or the bylaws to state whether it has members.  If so, the classifications of members, the “manner of election or appointment and the qualifications and rights of the members.”  Another provision of this part of the code states that “unless otherwise specified in the articles of incorporation or the bylaws, an individual, domestic or foreign profit or nonprofit corporation, a general or limited partnership, an association or other entity may be a member of a corporation.” 

            If an organization adopts Robert’s Rules of Order Newly Revised as its parliamentary authority, under the Washington State Code, it might not be necessary to list all the rights of the members.  Bylaws might state that members have all the rights assigned in the parliamentary authority and then list anything else that might be unique to that organization.  In writing bylaws under the Washington State code, if a provision were left out concerning the rights of the members, then the members would have no rights at all.  This is a very important point to consider: what rights and what duties and responsibilities does an organization want to assign to the members?  In this case, if the organization did not adopt a parliamentary authority it would have to say in the bylaws that the members had the right to attend meetings, make motions, debate motions and vote.  If this were not put in the bylaws, then the members would not have the right to do these.

            Another key point in the Washington State code is whom the code allows to be a member.  Does an organization want another corporation to be a member?   The church bylaw committee did not want another corporation to be able to be a member.  So the committee wrote the bylaw so that the membership is comprised of individual persons, which then preclude corporate entities.     

            Normally, in corporations, boards of directors have the most power and final say on things.  However, if an organization is founded on the democratic model, where the final voice and decision making rests with the membership, then the bylaws need to have  a bylaw provision that states: “the members have a right to rescind actions of the board of directors.”  This can be included under rights of membership or it can be included under the article concerning the board.

            Sometimes organizations have requirements to continue in membership.  If this is the case then there should be a section in this article that tells what the members have to do to continue to be a member in good standing and what the penalties are if they don’t fulfill these requirements.  If the members can be removed from membership, that should be included and the procedure for removal.  Some organizations have a section on discipline, but RONR recommends that be left to the parliamentary authority if RONR is the adopted authority.

            Other points that should be in this article are how the application procedure should be handled including the method of reviewing and voting on applications, and then how the applicant is to be notified of membership.  If the organization has dues, then a section should be included about what the dues are, when they are payable, and when they become delinquent and when a member is dropped for nonpayment of dues.  Voting rights can’t be suspended for nonpayment of dues unless this is in the bylaws.  Members can’t be assessed any additional assessments unless this too is in the bylaws. 

 

This is will be continued in the next newsletter.

 

Washington State Nonprofit Corporation Act, RCW 24.03.045

Mancuso, Anthony, How to Form a Nonprofit Corporation, (Berkley: Nolo) appendix

Washington State Nonprofit Corporation Act, RCW 24.03.065

Ibid.