Your nonprofit’s bylaws

Practice Leader: Susan M. Greggo, CPA, Partner, Director of Not-for-Profit Services and Illinois CPA Society Accounting and Audit Sub-Committee Chairperson

Those golden rules may need more than polishing

Has your organization outgrown its bylaws? Sometimes, as a nonprofit expands and matures, the guiding rules set when it was just a twinkle in its founders’ eyes need to be revisited and brought up to date.

Revising your bylaws involves more than just altering the language of rarely visited documents. The process provides you with an opportunity to look closely at how your nonprofit is evolving and whether such developments are consistent with your original mission.

Serving as your architectural framework

Bylaws are the rules and principles that define your governing structure. They serve as your not-for-profit’s architectural framework. Although bylaws aren’t required to be public documents, making them available to the public can boost your accountability and transparency.

Your bylaws might cover such topics as the broad charitable purpose of the organization; the size and function of your board; and the election, terms and duties of your nonprofit’s directors and officers. They also usually cover your nonprofit’s basic rules for voting, holding meetings, electing directors and appointing officers. And without being too specific, your bylaws should provide procedures for resolving internal disputes, such as the removal and replacement of a board member.

Forming a bylaw committee

Before you attempt to revise the bylaws, make sure you have the authority to do so. Most bylaws contain an amendment paragraph that defines the procedures for changing these rules.

Then consider creating a bylaw committee made up of a cross-section of your organization’s membership or constituency. This committee will be responsible for reviewing existing bylaws and recommending revisions to your board or members for a full vote.

It’s important that your bylaw committee focus on your not-for-profit’s mission, not organizational politics. A bylaw revision is appropriate only if you want to change your nonprofit’s governing structure — not to cater to one of your leader’s pet projects.

Revising what’s important

If your nonprofit is incorporated, you’ll need to ensure that any proposed bylaw changes conform with your articles of incorporation, which spell out your nonprofit’s purpose and outline its allowable activities. For example, the “purposes” clause in your bylaws must match that in your articles of incorporation. Any new provision or language changes in your bylaws, contrary to the objectives and ideals included in your incorporation documents, could invalidate the revisions.

Wanting to change the rules about how you operate suggests that you may have drifted from your original purpose. Bylaw revisions that indicate you’ve strayed from your initial mission can jeopardize your federal tax-exempt status. By all means, make sure your bylaw amendments remain consistent with your tax-exempt purpose. And notify the IRS if they represent a “structural or operational” change by reporting the amendments on your Form 990.

In addition, review your state’s statute that governs nonprofits, because it may contain mandatory provisions that affect your bylaws. In the absence of bylaws, when faced with issues about your governance, your state may dictate a proper course of action. If you don’t coordinate your bylaws with such a statute, you may unwittingly hinder your governing board’s ability to operate.

An accurate reflection

Through the years, your nonprofit is likely to experience a number of changes: Its constituency and support may grow and its goals and priorities may shift. Your professional advisors can work with you to amend your bylaws and make sure they accurately reflect your organization as it exists today.

 

About:  Susan Greggo, CPA, Partner heads Warady & Davis LLP’s not-for-profit industry team.   She is a recognized leader in the Not-for-Profit sector and is often called upon as a consultant for issues specific to the industry both by clients and non-clients alike.

 

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