Starting a Nonprofit Series: Your By-laws, Your Backbone
This is the third in a series of posts describing the process of becoming a tax-exempt organization.
So you’ve decided to start a nonprofit. You’ve recruited a board, incorporated, and opened a bank account. What’s next? You need your organization’s backbone: By-laws. These are the foundation for how the organization will conduct business and continue to grow and function into the future.
If you are a sub-group of a large, national organization, you may have a template to use that is plug and play from the parent organization. Using their template will ensure your by-laws are in alignment with the parent organization and will address all the topics.
In my own experience, I have found Maryland Nonprofits to be a very valuable resource. Their book “How to Start a Nonprofit” published with the Community Law Center, Inc. has a great section about by-laws and what you should consider as you get started. It also includes language on common topics such as membership, officers, meetings, quorums and majorities, conflict of interest, and amending your by-laws. As an Emerging Member, you can access their download center and find examples and templates you can use to get started. Again, well worth the $100 for membership!
As you begin the writing process, here are a few things that have come up with my clients in addition to the list from Maryland Nonprofits. For example language and a more exhaustive list, consult the “How to Start a Nonprofit Book” which you can purchase for only $25.
Are you a membership-based organization? You will need to define your membership including various categories of membership that may or may not have voting rights. If you are a subgroup or a chapter, look to your parent organization for this wording and reference their by-laws in your own.
Terms of Office –how long will your officers serve? One to three years is the norm, though three might be the best. It gives everyone time to get some experience. Also figure out how to stagger your officers so you don’t have an entire board turnover at one time causing the organization to lose all its collected experience in one go. Consider term limits so your board will have opportunity for fresh volunteers to participate.
Fiscal year vs. calendar year: If your accounting year doesn’t match the calendar, meaning it starts in January and ends in December, you’ll be on a fiscal year. Many organizations use fiscal years for good reasons. One organization used a fiscal year of October 1- September 30 because the parent organization used the same fiscal year as the Federal Government because of funding. Another organization uses July 1-June 30 because that is the fiscal year used by the state of Maryland and the county governments.
If you’re anticipating funding from either the state or the fed, you might want to align your fiscal years with them. For example, you may apply for a federal grant in March, but the funds won’t be awarded until the next fiscal year starts on October 1st. The drawback is that when you do 1099’s and donor acknowledgment, they are based on calendar year.
Your annual filings with the IRS is due“15thday of the 5thmonth after the organization’s accounting period ends (May 15thfor a calendar-year filer)”. Your annual Charity Registration Renewal is due within six months of the end of your accounting period.
Establish Your Annual Meeting Month– every organization should have an annual meeting. During that meeting you will usually vote to approve changes to by-laws and new board members (unless you’re a member-based organization). Most organizations pick Spring. My personal experience is that is not the best time because everyone else is trying to recruit new board members at the same time! Pick a month when you think will be the slowest time of year for your organization and when you think the majority of your board members will be available. You don’t want to run the risk of forgetting your annual meeting or trying to schedule it around everyone’s vacations.
Other Things to Keep In Mind:
Don’t start from scratch. Find templates of other organizations – many are available online. Consult the Standards for Excellence for guidelines of topics to be addressed.
Be careful about how much detail you include. By-laws are NOT a procedures manual but the guidelines for how to do things. If you put too much specificity into the by-laws you can create complications down the line as technology changes. An example of this is requiring that election ballots be sent to membership. If your by-laws specify that they must be mailed via the USPS by a certain date, you will not be able to email ballots or information to your membership without changes to by-laws.
Proxy voting is no longer allowed. In the past, organizations were able to have absent board members give their vote to another member for the board meeting. This is considered a violation of a board member’s fiduciary responsibility.
Voting via email is not allowed. The purpose of the board is to have discussion about the well-being of the organization and ensure its resources are being used for the mission. Voting on issues needs to be live where individuals can hear the other board members opinions in real time before making a decision. Board meetings can be conducted in person, via conference call, or even Skype – as long as everyone can hear the discussion.
It’s okay to change your by-laws. As the years progress and your organization grows and changes, you will need to conduct periodic by-law reviews and make adjustments. There’s nothing wrong with that – just be sure you follow your process of amendment included in the by-laws.
Now you’re ready to have your first Organizational Meeting!
Call your board together for your first meeting. Be sure you take minutes to record the activities and appointments to office. During this meeting you will affirm your board members, establish any initial staggered office tenures, and vote to approve your by-laws. If you have any of your policies, such as Conflict of Interest ready, have the board approve those as well.