10 Most Common Bylaw Problems Facing Nonprofit Organizations (Part I)

May 6, 2016 Nonprofit Roundup Blog

Over the years, we have seen and reviewed numerous sets of nonprofit organization bylaws. Time and again, we see the same mistakes being made. We've complied a list of the top 10 problems we encounter when we review a nonprofit organization’s bylaws. Join us as we count down to the most frequently encountered bylaw problem. Will your bylaws contain any of these problems?

10. Notice Period – In an effort to ensure directors can make arrangements to attend special board meetings, a nonprofit organization’s bylaws typically require long notice periods for such meetings. Sometimes, these notice periods can be 30 days long. The problem with this length of time is that it prevents the board from being able to respond to emergencies without obtaining waivers of notice from each director. The best practice here is to review your state’s nonprofit corporation law and determine the minimum time needed for notice of a special board meeting. If state law defers to your nonprofit organization’s bylaws, a best practice is to require only 2-5 days’ notice for a special meeting.

9. Executive Committees – To allow a nonprofit organization to conduct important business between board meetings, many nonprofit organization bylaws provide for executive committees. An executive committee is generally comprised of the nonprofit organization’s officers and gives its members the ability to approve certain actions without first obtaining board approval. The key here is to ensure the executive committee is not given more power than is allowable under state law. For instance, many states required heightened board approval for certain fundamental transactions (e.g., sale of assets, merger, dissolution, sale of real estate). Regardless of the type of actions undertaken by the executive committee, it is always a best practice to have the board approve/ratify any such actions at the next board meeting.

8. Board Officers v. Officers of the Corporation – Many nonprofit organizations confuse board officers with officers of the corporation and vice versa. Board officers are typically a chair and a secretary and generally are required to be board members. Their duties revolve around leading and recording board meetings, respectively. Officers of the corporation, such as the president, vice president and treasurer, have broader duties that often include overseeing or being involved in the nonprofit organization’s day-to-day activities. Given their separate roles, officers of the corporation do not need to be board members. And, it is actually a best practice for such officers not to be board members. For example, if the board elects the officers and the officers are all board members, then the board has effectively lost its power to properly oversee the officers. It is unlikely that a director would vote to remove himself as an officer, regardless of how bad of an officer he/she is.

Check back next week for more common bylaw problems.