Characteristics of Good Bylaws for a Non-Profit

by John Cromwell

Nonprofits often implement bylaws to ensure their resources are used efficiently and their charitable purposes fulfilled. Bylaws are the written rules and procedures that a nonprofit adopts and uses when conducting its operations and should define the purpose of the nonprofit. Some states require a nonprofit to have bylaws, and of those states, some also require that nonprofits file their bylaws with a state agency. A nonprofit may prepare its bylaws on its own or use an online legal documentation service.

Distribution of Money

Arguably the most important part of a nonprofit’s activities is how it uses its financial resources, such as money it receives from grants. The bylaws' rules regarding nonprofit funds should be specific enough for officers and directors to know how to act in any given situation. However, the bylaws should not be so detailed that it is difficult for the organization to act under unanticipated circumstances. Nonprofit bylaws generally prohibit officers and directors from "self-dealing." A person "self-deals" when he does something as a representative of the nonprofit that benefits him more than it benefits the organization. An example of self-dealing is an officer authorizing a transaction that results in the officer receiving a lot of money while the nonprofit receives only a minor benefit. Some grants may require that a nonprofit's bylaws prohibit any of its officers and directors from personally receiving grant money given to the nonprofit under any circumstances.

Officers and Directors

The bylaws should identify how many directors are required to sit on the board, what officer positions the nonprofit will have, and how long the terms of each position will be. The responsibilities of each position should be described in the bylaws as well. Generally, officers run the day-to-day operations of the nonprofit and make the important decisions affecting it, such as disbursing large cash contributions to another organization. The terms of the directors' tenure are normally staggered so the board’s membership does not change entirely in any one year. In addition, a nonprofit must have a President, Secretary and Treasurer. The procedures for electing and appointing officers and directors should also be included in the bylaws. Since it may benefit a nonprofit to remove problematic individuals easily, the bylaws should allow the nonprofit to remove employees without cause.

Votees and Holding Meetings

The process for calling meetings and holding votes on matters related to the nonprofit’s operations should also be included in the bylaws. The challenge is to balance the need for an established process against the risk of having too formal a process that stymies the ability to make decisions. Some nonprofits may elect to adopt formal meeting rules, such as Roberts Rules of Order. However, these overly complex rules can make decision making a time consuming process, so many use standardized formal rules as a guideline and adopt a process that makes sense for their unique circumstances. Deadlines and steps required to call a meeting or a vote should generally be minimized.

Rights of Members

Many state statutes grant members the right to vote in nonprofit matters, unless that right is limited by the bylaws. It may be a good idea to limit the voting power of members, since too many voters can make decision making difficult and time consuming. In addition, a nonprofit may want to limit its members’ voting power because it may be difficult to call a vote and get all of the members of the organization to participate. By limiting member votes to a few issues, the nonprofit can run more efficiently.

Amending Bylaws

The bylaws should describe the process for amending its rules. As time passes, some rules may become outdated or unanticipated situations may arise. By amending the rules, the organization can meet new challenges without being hobbled by past decisions. Generally, amending bylaws will require a vote of the directors and members, and may require a super-majority of at least two-thirds of the people voting.