Everything You Need to Know About Nonprofit Bylaws
As a nonprofit, bylaws are the backbone to your organization, they provide structure, and act as a guidebook for your nonprofit. The IRS defines bylaws as the internal operating rules of an organization. They do ask that you include bylaws in your 501(c)(3) application, but only if they are already adopted and approved.
If you are just starting your nonprofit and have adopted your bylaws, then you should include them with your 1023 form. If not, they are not mandatory, but highly recommended by the IRS and established nonprofits.
Why? Because they save time, shorten the application for the tax-exemption process, and they will be very helpful for the organization of your nonprofit and especially for the board of directors! In addition, they can potentially be used as your organizing document (also required for your 501(c)(3) application, see more on this later).
Each state has different regulations concerning bylaws, so be sure to double check before having them approved!
In this article, we will go over everything that your bylaws need to include and give you all our top nonprofit tips:
- Board of Directors
- Board Officers
- Bookkeeping & Misc.
- Counter Terrorism and Due Diligence
- Document Retention Policy
- Code of Ethics & Whistleblower Policy
- Adopted & Approved
We have solicited an attorney specialized in tax-exempt organizations to be sure we give you the best idea of what to include in your bylaws.
Let’s get started!
This section should include your legal name, go figure. Be sure that you are using your official name as stated in your organizing documents and the one that you will use when you register your organization.
If you are still stuck on what to name your nonprofit, we have got you covered! We have an entire article dedicated to helping you figure out how to name your nonprofit. We recommend thinking about your brand image and the impact of your organization. Think about things like who your beneficiaries are, what your main operations are, and what community you serve. With this, be sure to think sustainably by creating a name that your organization won't outgrow.
Your purpose is important to state correctly because it cannot be outside of the exempt purposes defined by the 501(c)(3). This just means that you want to make sure you aren’t including anything unnecessary in your purpose.
Pro Tip: To help with this, we suggest that you use the example that the IRS gives in the 1023-EZ filing instructions: "The organization is organized exclusively for charitable, religious, educational and scientific purposes under section 501(c)(3) of the Internal Revenue Code, or corresponding section for any future federal tax code."
The IRS has listed several purposes that you should be applicable for as a 501(c)(3): charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. Feel free to use their example with one or more of these purposes.
This part of your bylaws would include any information you have about memberships. First, you have to decide if you will have members. If yes, make sure you mention what the dues will be, and include their membership rights (like voting rights).
If you want to have different "classes" of membership, be sure to describe that in this section!
Board of Directors
Finding the right board members is vital to your organization because they are the people that will put your mission first and uphold the operational rules. Once you have built your board you are ready to dive into this section!
You will need to mention the board’s powers, number of officers, number of terms they will serve, removal process and conditions, and any compensation. Just keep in mind that if someone is being paid to work for you, hourly or salaried, they cannot be voting members of your board.
The previous section is more about the administrative aspects of how the board works as a whole. This section will show the titles and people behind the titles. You should explain what the role is of each officer, and some personal information.
The IRS recommends that you include their names, mailing addresses, titles and positions, and annual compensation. You should also include this information about any other principal individuals, such as your founder.
This section should consist of any existing committees that you have, and the ability to create them in the future. You can also include information about when they will meet, how many members they will have, or the rights of committees.
If you get to a point where you are finding your committees hard to regulate, you might want to include more details here that will establish guidelines.
If you do not plan to have any committees, just mention that here. Remember, you can always change this later.
Bookkeeping and Misc.
We know that accounting is not everyone’s cup of tea, and luckily this section doesn’t require too much info! In this section you need to mention that your nonprofit will keep books and if you are operating on a calendar or fiscal year.
For a little accounting refresher, "keeping books" is another way to say that you are maintaining your financial records, which you are required to do.
Mary definitely needed a reminder about nonprofit bylaws
A calendar year is an accounting year that goes from January to the next December. Anything outside of this framework is considered a fiscal year. For example, if your nonprofit’s accounting year starts in August and ends in July, you would be operating in a fiscal year. If you are going to use this system, be sure to mention when this is.
This section will also include any miscellaneous information that is not covered in the other sections. The most notable examples of what you could include here would be a conflict of interest, and a founder’s clause. A conflict of interest clause is necessary for you to make sure that no operations are benefiting officers, directors, or any other involved parties.
Founder’s clauses are a bit of a hot topic because some nonprofits see it as a way for the founder to avoid being voted out by the board of directors. Most states do not approve of creating a founder’s clause for this purpose, so be extra careful with this. Normally this is a moot point if you have a committed board of directors. If you are still unsure, we recommend you contact a lawyer or legal aid center for further guidance.
Counter Terrorism and Due Diligence
This section only applies to nonprofit organizations that are operating internationally, and ensures that none of your money is going towards terrorist organizations or their support networks.
Document Retention Policy
This section should describe all of the types of documents that you have, such as your corporate documents, tax records, financial statements, press releases, marketing and sales documents, contracts, insurance papers, and banking paperwork. You also need to mention how long you will keep each of them for.
Pro Tip: Be sure to check with your state for legal requirements on some of these, such as tax papers and employment records.
As a nonprofit, your financial statements and board meeting minutes are considered public information. Being so, this section will include a statement confirming this along with how this information will be accessible (i.e. by calling to request, available on your website, or other).
Codes of Ethics and Whistleblower Policy
This section is very helpful to prevent conflict of interest situations! A good code of ethics can ensure each individual that is part of your organization feels responsible for their actions.
Combine this with a whistleblower policy and you have a solid base to ensure that your nonprofit is using the best and most ethical practices possible.
Earlier we said that you will be able to change your bylaws if you need to. This section makes that possible! According to the IRS, you can change your bylaws whenever you like, but you will need to report all significant changes in Schedule O of Form 990. This form is filed annually for your financial compliance. This also applies to your articles of incorporation!
Pro Tip: Be sure how to mention how you will amend your bylaws and articles of incorporation. The general rule is that you will need a two-thirds vote of your board.
Adopted and Approved
You made it! You got through the legal jargon and now you just need to sign and date.
Make sure to put the date that you want your bylaws to become active, and have them approved (sign) on that day.
Fun fact: Bylaws can be considered your organizing document. As a corporation, your organizing document is your articles of incorporation. We have mentioned articles of incorporation a few times, but what if you are not a corporation? That is where your bylaws come in! The IRS states that your bylaws can be considered your organizing document if they include your organization name, your purpose, the date adopted, and two signatures.
Now that you have made your bylaws you are one step closer to becoming a nonprofit organization. Congratulations!
We hope this article has given you a better understanding of nonprofit bylaws!