If you’re a non-profit leader, you most likely have received a call from a board member sharing they have the solution to an issue you discussed at the last board meeting.
The solution is expensive, but after researching it more, it does seem like the perfect fit. It truly does solve the issue at hand, so you go ahead and sign a contract for the solution.
Everything seems to be running great until someone files a complaint against how you procured that solution.
You didn’t know there were multiple companies offering similar solutions, including one that was significantly less expensive than the one the board member offered. As such, the accusations start flying internally and on social media.
They accuse you of wasting the non-profit’s funds.
They accuse you of just pleasing a board member.
They accuse you of providing insider information to a board member.
They accuse you of not following the professional standards of non-profits.
None of this is good, especially when the media picks up on the situation, but it all could have been avoided with a great set of bylaws that were followed methodically.
If your non-profit organization does not have a great set of bylaws, or you simply want to make sure your non-profit organization’s bylaws are up to date, please reach out to The Orlando Law Group today. Our attorneys specialize in helping non-profits on all types of legal issues facing non-profits, like bylaws.
Why are bylaws important?
The bylaws of any organization are the most essential part of any organization, especially a nonprofit. They are the road map for governance, providing direction to staff and the board about how the non-profit organization operates.
Bylaws should be tailored to the organization and its needs. Yes, bylaws are required by Florida statute, but there is no instruction manual for what is included in an organization’s bylaws.
Florida statutes simply state:
The initial bylaws of a corporation shall be adopted by its board of directors. The power to alter, amend, or repeal the bylaws or adopt new bylaws shall be vested in the board of directors unless otherwise provided in the articles of incorporation or the bylaws. The bylaws may contain any provision for the regulation and management of the affairs of the corporation not inconsistent with law or the articles of incorporation.
It is clearly up to the organization what should be in your bylaws.
Steps to take when creating your non-profit organization’s bylaws
Any non-profit organization’s bylaws should reflect the organization’s goals and objectives. While it’s not a tactical document on how to reach those goals, it is a document to show the procedures and processes the organization should follow to reach those goals and objectives.
We find the best way to start the process is to create a small group of board members who are interested in how the organization is governed. These individuals usually have experience in non-profit board service and understand what usually needs to be in a non-profit organization’s bylaws.
This group should work with an attorney, who can provide guidance to ensure you follow all statutes that govern non-profit organizations. The attorney can also provide you with examples of bylaws from other organizations to set the stage.
Most of the work on changing bylaws happens in this committee. They will work with staff to see what works and what does not work in the current bylaws. They will look for places that need clarification or items that are just not irrelevant.
This group will put together a proposed set of bylaws to present to the full board, which will then accept the changes or ask for further changes.
Of course, many people do not like working through committees, but with a non-profit’s bylaws, it is important to have the full board’s commitment to the document. With their commitment, it is much easier to follow and refer to in situations where the staff may need guidance.
What should be in a non-profit organization’s bylaws
While every non-profit organization’s bylaws will be unique in some fashion, the subject matter of the bylaws is fairly standard for most non-profit organizations.
Specifically, here is what needs to be in your bylaws:
- Name and purpose of your organization. This should include your mission and vision statements determined through strategic planning of your board of directors.
- Election, roles, and terms of board members and officers. How this is done can vary significantly depending on the size and goals of each non-profit organization. Some organizations might want a nominating committee to provide board members, others may not.
- Meeting guidelines. These should include how often the board meets and what constitutes a quorum. One thing to focus on here is what constitutes a quorum and to ensure it is not too difficult to reach. You want to have enough board members present for critical votes, but you don’t want a regular lack of quorums to prevent the non-profit organization from moving forward.
- Board structure. This could include the number of board members, standing committees and their roles. Again, this can be specific to any organization, although a finance committee and an executive committee are standard. As to board size, there is no right answer. Some non-profit organizations have very large boards and others have just a few people. That is a decision of the board.
- Compensation and indemnification of board members. Most non-profit organizations do not pay board members, but it is up to the board to determine that aspect. The indemnification part is essential if you would like to attract higher-level board members.
- Role of the chief executive, the paid leader of the organization. This is truly essential as it is the basis for any employee review. It is also critical to let board members and staff understand what tasks they each should be doing and what processes and procedures they oversee.
- Conflict of interest policy for board members and its staff. One of the worst scandals a non-profit organization can experience is being accused of using donor funds to enrich the board or the staff. Understanding these conflicts and having a policy about conflicts in purchasing is essential to protect the non-profit group.
- How to amend the bylaws in the future. A bylaws document should always be able to be amended easily with the permission of the board. It is impossible to see every issue that may need a bylaw change in the future.
- Dissolution of the organization. No one likes to think about the end of the non-profit organization, but it happens, and you want to make sure the board has thought about what must be followed if the end comes.
All of those apply to just about any 501(c) organization. If you are a 501(c)(6) organization, a membership group, like a chamber of commerce, then an outline of the membership procedures, including how members are accepted and terminated, will be needed.
Other aspects to watch when creating your bylaws
Creating bylaws can be tricky, but when the board comes together, the bylaws are more than just a governance document. It is a platform to give potential donors the security that the non-profit organization is a well-run organization.
For instance, when you talk about term limits in your bylaws, the organization should look at the overall state of the non-profit.
Often there is a debate on term limits for board members. After all, do you want to see someone who is an integral part of the board leave simply because of timing?
Maybe.
But do you have a pipeline of potential board members waiting to join the board or are you struggling to find quality board members?
Will it help your board to have as many community members as possible or do you want the board to be exclusive?
While best practices call for a non-profit to have term limits, that is an individual discussion. For many early non-profits, term limits may come later in the organization.
Another aspect is to make sure the bylaws are written at a high level.
While a non-profit wants to be specific, it should not detail the day-to-day operations of the organization. That should be developed by the paid executive.
For instance, the bylaws of the organization should not have how annual reviews of the customer service agents are performed but it should clearly state how the top-paid executive is reviewed.
When writing the bylaws, make them difficult to change, but not too difficult to change.
For instance, having a supermajority of all of the members of a chamber of commerce approve a bylaws change would be a nearly impossible task, but having a supermajority of the board approve a change is hard, but not impossible.
Finally, remember the bylaws are the rules by which the non-profit is governed. In too many cases, the bylaws are written, approved and then filed as done and not looked at again.
The bylaws should be living, breathing documents that are looked at regular basis.
Examples of how to use your bylaws
Going back to the beginning scenario where a board member proposes a solution to an issue the non-profit organization is experiencing.
When the board member suggests a product or service, the first step should be to check the bylaws for the processes and procedures when that happens.
Does the board member have a conflict of interest? For instance, is the company owned by the board member or a client of the board member?
If there is a conflict of interest, what are the procedures for handling conflicts of interest? Do the bylaws talk about disclosing conflicts or do the bylaws change the procedures for procurement if there is a conflict of interest? Or do the bylaws just say you can’t work with a board member’s company?
Then, check to see what the bylaws say about any procurement. Is there a requirement for multiple bids? Are there specific levels where you need full board authority to purchase?
If you follow all the bylaws, the non-profit organization has some protection against accusations of preferential treatment or wasting money.
Another example is with new board members, particularly when there are more people wanting to be on the board than there are board seats.
When bringing on new board members, the bylaws should have a clear process as to how new board members are approved. This often has a nominating committee that presents to the board a slate of candidates and then the board or membership approves the board members.
What happens if someone really great wants to join the board, but the bylaws say the only time a board member is added is once a year – and that just happened?
Unfortunately, the organization has to wait or go through the process of amending the bylaws to allow for specific exceptions.
But, if you don’t follow the bylaws in every case, you’re ignoring the rules of the organization. That could have serious consequences, including lawsuits or losing your non-profit status.
In March, The Orlando Law Group will be holding its first non-profit boot camp, where our attorneys will work closely with non-profit leaders to ensure the non-profit organization is following all the legal aspects required.
By attending, non-profits can truly give donors and the community the comfort that their non-profit is one being run with the highest standards.
The attorneys at The Orlando Law Group help non-profit organizations in Orlando, Waterford Lakes, Altamonte Springs, Winter Garden, Lake Nona, St. Cloud, Kissimmee, and throughout Central Florida.
If you have questions about anything discussed in this article or other legal matters, give our office a call at 407-512-4394 or fill out our online contact form to schedule a consultation to discuss your case. We have an office conveniently located at 12301 Lake Underhill Rd, Suite 213, Orlando, FL 32828, as well as offices in Seminole, Osceola and West Orange counties to assist you.
The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact our law firm directly.
Last Updated on January 28, 2025 by The Orlando Law Group