A nonprofit's bylaws provide the legal structure for how the nonprofit will operate. Nonprofits that want to formally incorporate and apply for Internal Revenue Service tax-exemption must file their bylaws with their state governments. Although nonprofits have flexibility when it comes to what they include in their bylaws, state laws cover basic governance issues and bylaws must not violate state requirements. A nonprofit could be challenged in court if it violates its bylaws.
Bylaws define matters such as how many board members a nonprofit has, their roles, their duties and the procedure for their removal; how decisions regarding grant money will be made; and how conflicts of interest will be handled. Bylaws also should provide a statement that limits the personal liability of board members for the nonprofit's activities. Not only can nonprofit bylaws be amended, but they should be amended as the organization grows or changes. A growing nonprofit, for example, may want to expand the size of its board and redefine some of the members' duties. Bylaws should adequately describe how the organization operates. If a nonprofit cannot show that an action it took is allowed by its bylaws, it leaves itself open to challenges -- including lawsuits -- by its members, auditors or vendors.
A copy of the nonprofit's bylaws should be available to each board member at board meetings so board members become familiar with and consult the bylaws. A nonprofit's board and its top administrators or officers should get together periodically to go over the bylaws and decide if they need updating. When they are first drafted, bylaws usually include a statement about how they can be amended. If a nonprofit's board thinks the bylaws need updating, the bylaws themselves are the place to research how amendments should be made. Typically, board members must be provided with due notice of any proposed amendments, and amendments must be approved by a two-thirds vote of board members in favor. An association whose membership has voting powers may be required to have bylaw amendments approved by a majority of the membership.
The Montana Library Association offers a process for amending bylaws. First, it suggests appointing a special bylaws committee to review the bylaws and any suggested amendments. The committee should also be given a set date to report back to the full board and provide a copy of proposed amendments to all board members, along with an explanation for their need and the committee's recommendations for approval or disapproval. During a full board meeting, the committee chairperson can read proposed amendments and move for their adoption. Approved amendments can be effective immediately. The association advises that amendments not violate board members' rights, fit with the original bylaw document, be consistent with general law and be reasonable, practical and easily obeyed.
Nonprofit board members with questions about amending bylaws should consult a lawyer familiar with nonprofit law. Nonprofits that are recognized by the IRS as tax-exempt must notify the IRS if they change their bylaws in any "structural or operational" way, such as when they're conducting new programs, by reporting the changes to the IRS on Form 990 or Form 990-EZ. They can also submit the amended bylaws or a letter describing the changes to the IRS Exempt Organizations Determinations Office. Although a nonprofit's bylaws are not documents that legally must be made publicly available, BoardSource, a group that works with nonprofit boards, encourages nonprofits to do so to show that the organization wants to be accountable and transparent to the public.
