When creating a nonprofit corporation, you are likely to spend a lot of time, and rightly so, thinking about the mission statement, fundraising activities and caritative works of the organization. A slightly less exciting, but equally important, subject is the content of your nonprofit corporation’s bylaws. These are essential to the efficient functioning of your corporation, both in the short term and on an ongoing basis.
Scope and Purpose of Nonprofit Corporate Bylaws
The bylaws are part of the core legal documents that constitute the distinct entity that is a corporation. Simply put, the bylaws explain how, on a day-to-day basis, your corporation conducts its business. Since a corporation is not a physical person, detailed bylaws are needed to explain how a decision is made and by whom. Some decisions are made by the members, others by the directors, and yet others by corporate executives. The bylaws must spell out who can validly decide what. For example, the signing of a lease for premises or the sale of an important asset may require board level approval, while the hiring of a maintenance crew could be left to the discretion of the executives acting alone.
Content of the Bylaws
The first section of your bylaws should deal with membership in the nonprofit corporation. Members of a nonprofit corporation are the equivalent of shareholders of a regular corporation, with the notable exception that they do not share in the company’s profits. Members attend annual meetings, elect the board of directors and approve the financial statements. There can be many types of members. For example, some may have voting rights while others do not. All of these rights must be spelled out in detail in the bylaws. Your bylaws must also include the procedural elements regarding the meetings of the members, the payment of dues, and the termination of membership. Finally, if the members wish to retain the right to make certain major decisions that are otherwise made by the directors, this is where it should be written. You may also consider that some decisions, such as large distributions of funds to further your cause, are so important that they need a special super-majority (for example 2/3 of the members). This must be indicated in the bylaws to be valid. Next, there should be provisions as to the constitution and functioning of your board of directors. How many directors are there? Where and when do they meet? How is the president chosen? All of these questions must be answered in the bylaws. The same is true of the corporation’s officers and their powers. For example, the bylaws should set out who has signing authority for your corporation’s banking matters. Every nonprofit is slightly different, and your bylaws should be drafted to reflect your reality. However, Corporations Canada has published a set of model bylaws that you can use as a starting point and checklist.