Non-profit bylaws are followed by certain companies and businesses. These bylaws serve as as your organization's internal affairs guidebook. Bylaws help to prevent disorganization and corruption within a company, and they should be clearly outlined in a company rulebook and employee handbook. This ensures all employees in a company are aware of the bylaws and how to follow them.
Non-profit bylaws will vary depending on the needs of the company. They may revolve around many aspects of the business, including grant funding, the board of directors, meeting minutes, filing practices, and more. Organizations can focus on different areas depending on their specialization and areas of interest. A company's bylaws must comply with all federal laws as well as state laws.
Unlike a conventional business, nonprofits are designed to positively impact a target community without yielding a profit. Nonetheless, nonprofits share much in common with for-profit organizations. This guide is designed to help anyone interested in establishing a nonprofit do so. We cover what distinguishes a nonprofit from a conventional business, the costs of getting one off the ground, and offer a step-by-step guide on how to create one of your own.
In general, nonprofits should be structured like a for-profit business. However, there are a number of important differences, including:
Ethically, nonprofits should minimize administrative costs and fundraising obligations.
For-profit organizations are funded through investors and revenue generated from customers who purchase goods and/or services. Nonprofits, on the other hand, are funded through donations (with no return on investments) and donate their services and/or goods for charitable purposes to those in need.
The startup costs of a nonprofit depend on a host of factors that vary by state. Other costs include:
Articles of incorporation: between $25-$195 (see more below)
Tax filing costs: the cost of filing for tax-exempt status depends on the size of your revenue and assets.
Additional costs: other costs vary by state, but may include fees for periodic reports or charity renewal.
Be sure to consult your state’s website
It’s best to hire an attorney with 501(c)(3) experience to help you start your nonprofit and file your tax exemption documents. Most attorneys lack experience working with nonprofits, so consider consulting the Better Business Bureau for recommendations for qualified firms.
Nonprofit bylaws are explanations of how your nonprofit operates. It is a legal document that is required by law. It is generally filed with the Secretary of State. The nonprofit also keeps a copy within the facility for physical inspection.
Nonprofits seek to generate funds in a number of ways. According to GrantSpace, they are funded in a number of ways, including government grants and contributions from both individuals and corporations. However, those wishing to start a nonprofit must go through a special incorporation process that is specific to nonprofits. All organizations undergoing the incorporation process, regardless of whether they are for-profit or nonprofit, must create a set of bylaws.
The most common provisions present inside of nonprofit bylaws are:
The name of the nonprofit and the document. For example, Bylaws of Nonprofit Incorporated, a Nonprofit Registered in the State of _____________.
A summary of board member and officer elections, their roles, and the general abiding terms. Common officer elections include a president, a vice president, a secretary for the nonprofit, and a treasurer who oversees the funds of the nonprofit. The qualifications of all officers and members of the board should be listed, as well as information on how individuals are elected and how they may resign from their position in the future. This provision should also explain any term limits that may exist for officers or board of directors, including how long each term lasts and whether consecutive terms may be served; it should also explain if there are term limits and, if so, how many terms may be served.
An explanation of the membership categories and the responsibilities of each category. Generally, members attend certain meetings, have voting rights, and may have other responsibilities as well. Many nonprofits limit the membership of their nonprofit to their board members. This section should explain the membership categories and the responsibilities of each. For example, how often meetings occur and whether all members must attend. This section is also used to explain when the annual meeting takes place as well as how notice will be given for special meetings of the board of directors.
Guidelines for the member meetings. This provision may also be titled as “Frequency” or “Quorum.” A quorum is the minimum number of members who must be present in a meeting before an official decision can be made at the meeting. The number of members should be listed, but it is important to first check the laws in your state to find out whether the state in which the nonprofit is incorporated has a minimum quorum. If so, your nonprofit should follow or exceed that minimum.
How the board for the nonprofit is structured. This provision explains the minimum and maximum number of directors or board members of the nonprofit. Before drafting this provision, check with the state where the nonprofit is incorporated. They may have either a specific minimum number of board members or a specific method you must use to calculate the minimum and maximum. You’ll also use this provision to explain the types of committees your nonprofit has. For example, a funding committee.
How board members are compensated as well as protected from personal liability. Indemnification is an important part of this provision because it explains whether or not (as well as how) board members are protected from personal liability. They aren’t always protected, neither are directors or officers for that matter. Compensation for officers, directors, and employees should also be explained in this provision. Compensation may be subject to approval. To learn more, consult IRS Form 1023, Application for the Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.
The day-to-day responsibilities of the Chief Executive Officer or Director. One responsibility of the board is to hire the Chief Executive Officer or Director. However, it is important to specify the day-to-day authority and responsibility this person holds. This provision should also specify that the board has the power to terminate the Chief Executive Officer or Director by a certain specified number of votes.
How conflicts of interest will be handled by the nonprofit. Nonprofit bylaws must include a provision that explains how the organization handles conflicts of interest. You should consult the laws in the state where your nonprofit is incorporated as well as review IRS Form 1023, Application for the Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.
How amendments to the nonprofit bylaws may be made. This provision is optional, but it plays an important role because it gives you a way to provide a simplified explanation of what must be done for the nonprofit to amend its bylaws. Without this provision, there could be a lot of hoops your nonprofit must jump through in order to amend the bylaws. A simple method that may be elected in this provision is by an amendment receiving a majority vote at a regularly scheduled board meeting.
How the nonprofit may be dissolved. Most of the time, nonprofit bylaws must include a dissolution clause. Check with the state where your nonprofit is incorporated to know whether this clause is legally required. However, even if it isn’t a legal requirement, the clause can save you a lot of trouble in the event that the nonprofit must be dissolved. When this clause is required by law, it must usually include that the assets of the nonprofit will be distributed upon dissolution for tax exemption.
A nonprofit bylaws template is most often organized as follows:
Article I. This is the name of the nonprofit.
Article II. This article explains the purpose of your nonprofit. You should also list a few specific activities that your nonprofit engages in, as well as the focused scope of what your nonprofit does.
Article III. This article addresses membership in many aspects. It includes eligibility, if annual dues are required as well as the amount, membership rights, resignation and termination of membership, and whether non-voting categories of membership exist or how they may be established.
Article IV. This article addresses meetings of the members. It includes the number of regular meetings that will be held and how often they will be held (such as quarterly; again, it is important to review the laws in the state where your nonprofit is incorporated to determine if there is a mandatory minimum), when annual meetings will be held as well as the purpose of them, how special meetings will be called as well as how notices for these special meetings shall be given, how notices for all meetings will be given as well as when they will be given, the quorum, and voting.
Article V. This article covers the board of directors, the authority of the board, and the board's responsibilities. It generally covers the general powers of the board, the number of board members, information about the length of the terms as well as year term limits, requirements to be a member of the board, when regular and annual meetings take place, how special meetings may be called by the board, how notices of all meetings must be given as well as when notices must be sent out, quorum, forfeiture of board membership, how vacancies on the board will be filled, whether or not board members will be compensated for their services, informal actions that may be taken by directors, a confidentiality clause that states board members may not discuss or disclose information about the nonprofit or its activities (however, this is not legally required in every state. Check the state laws in the state where the nonprofit is incorporated), whether there is an advisory council for the board as well as the council’s powers, parliamentary procedures, and how board members or advisory council members may be removed.
Article VI. This article covers officers and their responsibilities and authority. It must include all officers. Additionally, all nonprofit officers must be active board members. It must also address how officers are elected, how officers may be removed, and how officer vacancies shall be made.
Article VII. This article addresses the various committees of the nonprofit. It includes how committees are formed, how the executive committee functions as well as its powers and responsibilities, how the finance committee functions as well as its powers and responsibilities, and so on for every committee within the nonprofit.
Article VIII. This article addresses the responsibilities and powers of the Chief Executive as well as any other corporate staff. Even if the nonprofit doesn’t currently have corporate staff, including this article can be helpful for future governance.
Article IX. This article covers how conflicts of interest are handled by the nonprofit as well as compensation matters. It is very important to review if not even use IRS Form 1023 language to explain how conflicts of interest will be managed. For compensation matters, address the purpose of the compensation, definitions related to those who may receive compensation (as well as a definition of the word “compensation”), the procedures by which eligible individuals of entities will be compensated, how those proceedings will be recorded, who is eligible for compensation (including voting members), and periodic reviews.
Article X. This article relates to indemnification. As you’ll recall, indemnification relates to the personal liability of board members, officers, corporate employees, or agents of the nonprofit. This article includes sections related to general indemnification, expenses related to indemnification (including the payment or reimbursement of attorney’s fees or court expenses), and insurance that may be available.
Article XI. This article relates to the books and corporate records of the nonprofit. Specifically, it addresses how the nonprofit will keep books and records related to the proceedings of the Board.
Article XII. This article explains how amendments to the nonprofit bylaws will be made and passed. While this is an optional clause, it is a helpful clause because it simplifies how amendments to nonprofit bylaws can be amended and adopted if necessary. Without this clause, the nonprofit could be subject to a lot of potential problems.
Language that positively identifies that the bylaws are adopted by the nonprofit. This ending clause is instrumental to the effective creation of nonprofit bylaws. The date the bylaws are passed or amended is listed. It is also signed by the president and the secretary of the nonprofit. Some nonprofits also require all of their board members to also sign off on the bylaws.
Under federal law, changes made to nonprofit bylaws must be reported to the IRS. This is done using IRS Form 990, Return of Organization Exempt From Income Tax.
Here is our step-by-step guide for establishing your nonprofit.
Vision statement: what difference do you envision making in the world? How will your nonprofit achieve that vision? This statement should be:
Brief (a few sentences)
Include where will the nonprofit will be located and do its work.
Specific examples of the work you will do.
Mission statement: how will you direct your efforts?
This statement should be more direct and specific than the vision statement.
For example, “We will accomplish 'x' by offering 'y' services to 'z' communities.”
Board of Directors: nonprofits need a board of directors that believe in and will guide the vision and mission of the organization.
Just like any other business, your nonprofit needs a business plan. It should include:
Budget and financial projections
List of employees, etc.
Articles of incorporation protect the board and staff from any potential legal liabilities.
Start by incorporating at the state level, regardless of the type of nonprofit you wish to establish.
Check your Secretary of State’s website for procedural information
From there, draft and file articles of incorporation with the office of the Secretary of State.
Articles include: name of organization, purpose, address, names, titles, and addresses of each member of the Board of Directors, and what will happen to the organization’s assets if the organization is dissolved.
Hire a corporate attorney to review the documents and ensure everything is legal.
Incorporation costs between $25 and $195.
Bylaws detail the operational rules of your organization. The Board of Directors will use these rules to guide the efforts of the nonprofit.
Information to include of bylaws include:
The procedures for electing new board members (as needed)
When meetings will be held
How to hire staff
What the organization can and cannot do
The policy for changing bylaws if necessary
Again, do your research. Study similar nonprofits, or look up sample bylaws for ideas on how to craft your own bylaws.
It's also important to include important clauses in your nonprofit corporation's bylaws, being as specific as possible to ensure your nonprofit utilizes only the best practices. Some important things to include are:
A conflict of interest policy
A majority vote clause
This ensures that the organization is heading in a direction that the majority of the board and other important players generally agree with because they have voted on any issues or decisions that the corporation faces.
Also be sure to note which staff members will have voting rights.
Special meetings and the circumstances that would warrant them
A schedule for regular meetings
Who will analyze and submit annual reports to the proper entities (per state and federal law)
When in the fiscal year that an annual meeting will be held
The treasurer of the company is responsible for solely and wholly maintaining the complete books, and shall do all necessary precursors to ensure that all financial and tax documents are properly handled and kept up to date. This role also entails ensuring our organization is prepared for future federal taxes."
The Ferber Foundation will never disclose the personal details about any of its clients. Furthermore, any employee found to have leaked information about a client shall be subject to immediate termination."
You will likely require grant funding--local or national-- to start your nonprofit. You may also consider fiscal sponsorship, whereby a larger nonprofit financially backs a smaller startup.
Understanding grants for nonprofits
Grant money is given to organizations for specific purposes.
You can apply for grants from businesses, foundations, local or national governments.
Federal grant amounts vary widely and can involve a lengthy and competitive application process.
Fundraising events can garner the attention of large groups of donors
Consider asking local businesses to donate free items for an auction.
An auction will raise money and help you make connections with local businesses.
Host raffles or sales
Resources: check out grants.gov.
Determine how your organization will keep its books. From there, you can open a bank account for your nonprofit. Many nonprofits hire a CPA to help establish an accounting system.
Additionally, you should set a budget for your nonprofit and develop a record-keeping system.
Legally, you are required to save all board documents including the minutes of board meetings, and financial statements.
If you aren’t sure what records you must keep in official files, contact the appropriate state agency to learn more.
Many nonprofits do not apply for federal tax-exempt status because they are able to receive all tax exemption benefits at the state level. Therefore, you should check the IRS website to determine the appropriate tax status for your organization.
If you elect to file with the IRS, your organization will become a 501 (c)(3). Keep in mind, however, that there are 29 types of nonprofits eligible for this status.
See our resources in this section to see if your nonprofit qualifies.
You will also have to pay a filing fee, which is currently $275 for a Form 1023-EZ or $600 for a Form 1023. Eligibility to file the simplified Form 1023-EZ depends on the amount of annual gross receipts and fair market value of assets.
If you intend to receive public contributions or business donations, you must also apply to receive tax-deductible status. You will need the following:
A name for your organization that is not the same as another corporation in the state
Most states require the name to have a corporate designator attached to it (e.g. corp., inc., or ltd.).
Apply for your chosen name on your state’s official filing website
There is generally a small fee to reserve your name until you have filed your Articles of Incorporation.
File for other state, municipal, and county tax exemptions, if applicable.
If you are unsure, check with the Department of Revenue for clarification.
As of January 31, 2020, the IRS requires payment for Form 1023 and Form 1023-EZ applications for exemption to be submitted electronically at Pay.gov.
*Note: you are not allowed to solicit or conduct tax-exempt business until you acquire federal and state letters approving your tax-exempt status.
To do so you will need to file an SS-4 form with the IRS.
An SS-4 is required in order to employ full-time staff at your nonprofit.
You can apply for this after the approval of your Articles of Incorporation.
Here is a brief example of what the process outlined above might look like for someone starting a military nonprofit.
Research and identify what makes your nonprofit concept different from similar organizations.
Determine whether it makes sense to establish a stand-alone organization or integrate your nonprofit within a bigger organization working towards similar goals.
Follow each of the above steps for establishing a nonprofit (detailed above)
There are extensive networks connecting military personnel and their families out there. Reach out to those groups to begin to identify potential donors, supporters, collaborators, clients, etc.
Reach out to local civic organizations for mentoring and support
Nonprofits provide essential services and goods to communities in need. Hundreds of thousands, if not millions of folks rely, in some capacity, on the work of nonprofit organizations. They provide thousands more with an opportunity to earn a living and make a difference while doing so. Hopefully, this guide clarifies some of the legal and technical requirements associated with formally establishing a nonprofit and helps anyone interested in starting one get their idea off the ground.
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