- When to Update Your Bylaws; A Process
- August 18, 2016
- Law Firm: Fred L. Somers Jr. P.C. - Atlanta Office
We often are asked how often or when a nonprofit private club or trade association should update their bylaws.
The rule of thumb answer is at least every five years and earlier if there has been a change in structure or local, state and federal law. Another situation calling for earlier is if there is a need to timely take address a situation not previously anticipated but which if needed action is taken it will conflict with an existing bylaw provision.
Bylaws are not immutable. They do and will require amendment. However, some boards act precipitously before annual member meetings and paste together a bylaw amendment not thought through carefully nor vetted by legal counsel. To amend bylaws, the amendment drafter(s) should be alert to potential internal bylaw and statutory and articles or certificate conflicts not to mention case law precedent bearing on the bylaw sought to be amended.
One recent method being used to avoid worrying about the necessity of bylaw amendments (which usually require member vote) is to consider relegating most all operational matters to a rules or policy manual. The benefit of doing this is significant. First, it avoids calling a members’ meeting, circulating the proposed bylaw amendment(s) prior to the meeting and circulating and tabulating the ballots for amendments. In contrast, operational rules and policy being the province of the governing board or delegated to professional management, may be changed without member voting being required.
Another benefit of relegating operational matters to a rules or policy manual is that it helps stream line the bylaws to fewer pages. The bylaws become a more friendly and useable document. Notwithstanding a director’s duty to be familiar with and abide by the bylaws, we occasionally have witnessed boards acting contrary to the bylaws because the bylaws are so lengthy no reasonable person could expect the board to be currently conversant with all of their provisions.
In reducing the size of bylaws by relegating operational details to a rules or policy manual, the frequency of bylaw amendments may be lessened to those necessitated by changes in the law or governing structure or unforeseen circumstances. For example, if an organization is migrating from a volunteer board and committee managed operation to a professionally managed operation, the bylaws likely may require amendment if they vest operational management in the board and its committees.
The question then becomes what is operational and can be legally and appropriately removed to rules or policy enactments? The answer depends upon several factors. First, what do the members expect to find in their bylaws? Limitations on terms of office, financial restraints, e.g., member vote required to approve capital projects exceeding a stated amount or approved budget, and member classifications, are usually expected to be set forth in the bylaws.
Next, what prerogatives do the members enjoy in their existing bylaws and are required by law or long standing custom or the culture to be retained by them? Examples include the right to select or dismiss their directors or governing board; the right of certain member classes to vote, hold office, serve on committees and share in liquidation proceeds; the right to initiate grievances; and the right to a hearing if accused of a violation of the bylaws, rules or policies (with the exception of failure to pay dues).
However, the details concerning some of these rights may be safely removed to the organization’s rules or policies. For example, the bylaws should require the opportunity for a hearing for egregious member violations of the bylaws, rules or promulgated policies. However, the specifics of when, how and under what circumstances the hearing will occur, may be left to the rules provided they conform to whatever statutory requirements exist for expulsion, suspension or other discipline.
Many traditional matters found in bylaws are more appropriate or the rules or policies. Examples include, duties of committees; dues and charges for members (excepting for those few organizations which retain the members’ right to vote on dues increases); and changes in fiscal year (properly a governing board function).
We have been privileged to work with numerous clubs and member organizations who have accomplished the goal of streamlining or modernizing their bylaws or operating agreements. The assignment initially involves working with the general manager or COO, one or two board or executive committee members and local counsel. These select officials are the “working group”.
The task involves some or all of the following: (i) Review of the current bylaws and articles or certificate; (ii) comparing and conforming them with industry models and templates considered by us to be beneficial and contemporaneous with governing standards of similar entities; (iii) comparing the bylaws to local, state and federal law requirements affecting the organization, e.g., Title II, III and VII of the Civil Rights Act; local and state law respecting governance of the type of organization being evaluated, e.g., state nonprofit corporate law or limited liability law and public accommodations law; (iv) recommending changes to conform the bylaws to current industry “best practices” and governance standards; (v) if requested, recommending bylaw provisions that may be removed to rules or policy; (vi) if applicable, recommending enhancement of the entity’s distinctly private status vis-à-vis Titles II, III (ADA) and VII of the 1964 Civil Rights Act, and related case law, regulations and rulings; and (vii) as applicable, recommending changes to enhance the entity’s tax exempt status under I.R.C. § 501(c) (6) or (7).
After the draft bylaw amendments, rules and policy changes are presented to and evaluated by the working group, they are normally reviewed by the governing board for consistency with custom, traditions and marketability, (i.e., likelihood of member approval). We recommend upon approval by the board the drafts then be exposed to focus groups of members for their input and evaluation. The board should thereafter consider the member input and make such changes as it deems necessary to accommodate the member input and enhance the likelihood of passage of the bylaw amendments. Success in the passage of bylaw amendments is improved by involving the members in the process. The proposed amendments then become “owned” by the members as after all, the bylaws are theirs.
Finally, the board seeks formal member approval of the proposed bylaw amendments. As part of the process, the board is wise to again hold orientation meetings of members to review and espouse the benefit of the proposed amendments.The entire process may take up to six months or less depending upon the availability of the key players involved in the process.