Better Bylaws

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Information about Better Bylaws
Business & Mgmt

Published on February 28, 2014

Author: westonces



Why are bylaws important? How often do they need to be revised? What should be in them and why?

BETTER BYLAWS Bill Taylor UW Extension Area Community Development Educator

REFERENCES • Better Bylaws by D. Benson Tesdahl, published by BoardSource, 2010 • The Handbook of Nonprofit Governance by BoardSource, 2010 • Free Management Library at

REFERENCES (cont.) • Wyoming state statutes at spx – Title 6, Chapter 5, Article 1 – Offenses by Public Officials – Title 9, Chapter 13, Article 1 – Public Officials, Members and Employees Ethics – Title 16, Chapter 3 – Administrative Procedure – Title 16, Chapter 4, Article 4 – Wyoming Public Meetings Act – Title 17, Chapter 19 – Wyoming Nonprofit Corporation Act – Title 18, Chapter 7, Article 1 - Libraries

DISCLAIMER • No training guides or lesson plans for public boards • All training materials written for nonprofit boards and organizations – Must be converted to apply to public boards • Wyoming statutes do not require bylaws of a public board, just rules of operation – Bylaws are easiest & most concise place for those general rules

DISCLAIMER (cont.) • Remember: – Bylaws are for internal operating rules for the board • No public hearing required – Rule-making for public policy requires the public hearing process

• Proper governance, best practices, call for bylaws • Bylaws are guide for how you are organized and operate – Without them, there is no standard by which to hold the board, members, or officers accountable

WYOMING LAW • W.S. 16-3-101(b)(ix) – “ „Rule‟ means each agency statement of general applicability that implements, interprets and prescribes law, policy or ordinances of cities and towns, or describes the organization, procedures, or practice requirements of any agency.”

WYOMING LAW (cont.) • W.S. 16-4-404(a) – “In the absence of a statutory requirement, the governing body of an agency shall provide by ordinance, resolution, bylaws or rule for holding regular meetings…” • WY Nonprofit Corporation Act good guide for those things applicable to public boards • Each establishing statute may be slightly different. – County Library Board example – W.S. 18-7103(b); 18-7-105(a)

CONSEQUENTLY • This presentation will be mix of nonprofit and public board practices – Some are interchangeable – I will attempt to delineate where there are differences

PURPOSE • Reflect how to fulfill mission & carry out business in orderly, legal manner • Define duties, authority limits, principle operating procedures

PRECIDENCE OF AUTHORITY • Nonprofit – Wyoming Nonprofit Corporation Act – Articles of Incorporation • Public – Wyoming statute, county resolution or city ordinance which established board – Wyoming statutes, county resolutions or city ordinances, or policies which dictate authority, governance, relation w/ other entities, etc.

PRECIDENCE OF AUTHORITY(cont.) • Nonprofits & public – Bylaws – always subordinate to statutes, county resolutions or city ordinance, articles of incorporation – Organizational Resolutions (properly passed motions) – subordinate to bylaws – Organizational recommendations, guidelines – often nonbinding – Organizational procedures – processes to implement policies

CREATION • At the organizational start-up • Need to be in place so the organization knows how to conduct business • Nonprofit file copy with IRS Form 990 • There is no state agency which reviews content or accuracy – Inconsistencies or improprieties usually addressed when someone (member, public) complains or files adverse action

• Content varies, depending on organization • Revising requires specific, often timeconsuming process, so detailed & specific policies often left to policy documents

CONTENTS (cont.) Suggested for nonprofit organization (P = Public in parentheses): • General – Official name (P) – Location of principal office (P) – Limitations required for tax exemption – Procedure for amending bylaws (P) – Procedure for dissolving organization – Disposition of assets on dissolution • Members (if a member organization) – Qualifications for membership – Admission procedures – Dues obligations – Classes of membership, their rights & privileges – Notice required for membership meetings (P) – Quorum requirements – Frequency of meetings and meeting procedures – Voting procedures (P)

CONTENTS (cont.) • Board of Directors – Size of board (P) – Qualifications for membership – Terms of office & term limits (P) – Selection process (P) – Process for filling vacancies (P) – Frequency of meetings (P) – Quorum and voting requirements (P) – Meeting procedures (P) – Powers of the executive committee – Other standing committees or statement that allows their formation (P) – Compensation of board members – Circumstances under which board members may be removed (P) – Conflict-of-interest procedures (P)

CONTENTS (cont.) • Officers – Qualifications for holding office (P) – Duties of officers or reference to job description (P) – Process for selecting or appointing officers (P) – Terms & term limits (P) – Provision for chief executive on the board (P) – Circumstance under which officers may be removed (P) • Fiscal Matters – Audit committee & audits (P) – Fiscal year of the corporation – Indemnification and insurance for officers & directors

MISSION • Broad statement of purpose in Articles of Incorporation for nonprofit organization (NP) • Further refined and clarified mission in bylaws

MEMBERSHIP • NP w/o membership controlled and administered by board of directors – Makes bylaws and procedures simpler, more efficient – Places control in hands of a few • The more types and levels of membership, the more complicated bylaws and procedures become – Members accorded rights by state law

BOARD OF DIRECTORS • NP board of directors/public board – similar in many ways • Size - best to provide range rather than specific number – Providing range does not require bylaw amendment to adjust • i.e. – County library board statute – 3 to 5

BOARD OF DIRECTORS (cont.) • NP – Can easily become too big to be efficient • Establish advisory body, honorary council for those prominent individuals who will not be able to be a working member of board – State whether or not compensated • Compensation (excluding reimbursement of expenses) is rare and legally risky • Excessive compensation may trigger IRS sanctions

BOARD OF DIRECTORS (cont.) • Selection – Nonprofit • Normally elected by members, if member organization • WY law allows other methods of designation or appointment if specified in bylaws • May be elected by board in non-member organization, or as specified in bylaws – Public • Selection process dictated by statute, resolution, ordinance

BOARD OF DIRECTORS (cont.) • Terms – Term limits • Advantages – – – – Ensure variety of perspectives Expand base of contacts Prevent concentration of power Easy way to eliminate undesirable members • Disadvantages – Loss of expertise & institutional memory – Cost of more orientation & training

BOARD OF DIRECTORS (cont.) • Terms (cont.) – Term limits (cont.) • Advantages & disadvantages balanced by allowing return after break in service of 1-2 years or terms – Length • Commonly 1-5 years – NP average – 3-year terms w/ 2 term limit – Usually staggered, especially w/ larger board

QUORUM • Minimum number present to conduct business • WY law – according to bylaws – Cannot be lower than greater of 1/3 of board members or 2 directors – 10% of membership, unless stated differently in bylaws of membership organization • Should you allow board to act w/o majority of board present?

QUORUM (cont.) • May require higher number for certain actions – i.e. amending bylaws, dismissing a director, etc. • Typically majority of board members – 1 over 50%

MAKING DECISIONS • Determine methods of acceptable decision making – Typical to state all business must be conducted by Robert’s Rules of Order • Too restrictive – what about consensus, other parliamentary law systems, etc.? • Suggest – “…or other methods as agreed upon by the (members)(directors)(board).” – As long as recorded in minutes as decision of group, a vote is not required unless stated for certain decisions in the bylaws, statute, resolution, or ordinance

MAKING DECISIONS (cont.) • Voting – Majority – one over 50% of those voting • Most common requirement – Super-majority – higher level for certain decisions • Amending bylaws often requires 2/3 or ¾ – Unanimous – may be required for most critical decisions

MAKING DECISIONS (cont.) • Voting (cont.) – Proxy – appointing someone else to vote for you • Allowed via signing proxy form in general membership voting (WY Nonprofit Corporation Act) • Not listed as proper form of director voting in nonprofit act • No provision for proxy voting on public boards

MEETINGS • Membership organizations required to hold annual meeting of membership – Board may meet as outlined in bylaws • Public boards – see establishing statute, resolution, ordinance – Some monthly, some quarterly, some as needed – Should publish time & place for regular meeting schedule (see WY Open Meetings Act)

MEETINGS (cont.) • Public boards (cont.) – 3 possible types of meetings (Open Meetings Act) • Regular, Special, Emergency • Outline process for calling, advertising, holding, recording of each in bylaws • Executive sessions – Outline process for calling, holding, recording – Public – only in accordance w/ Open Meetings Act

MEETINGS (cont.) • Virtual meetings – Public Meetings Act • “ „Meeting‟ means an assembly of at least a quorum…” • “ „Assembly‟ means communicating in person, by means of telephone or electronic communication, or in any other manner such that all participating members are able to communicate with each other contemporaneously.” – Must provide method for public to hear – DOES NOT include email decisions or discussion

MEETINGS (cont.) • Virtual meetings (cont.) – Establish acceptable methods in bylaws – Nonprofit Act does not mention any electronic means for meetings

OFFICERS • NP – President, Secretary, Treasurer required unless otherwise stated in bylaws – One person may serve multiple offices • P – see establishing statute, resolution, ordinance – i.e. – County library board – chair is required

OFFICERS (cont.) • Provide general outline of duties – minimum expectations – Can refer to detailed job description as additional document – Broad & flexible enough so bylaws do not require amending with every adjustment of duties

OFFICERS (cont.) • NP – carefully consider whether officers: – Chosen from among directors – Directors by virtue of being officers – Chosen from general public or membership, but not part of board of directors • Non-directors have no voting power on board – Most common – elect officers from among directors

COMMITTEES • Appointed to focus on specific issues, programs, activities, etc. – Specify who may appoint (commonly board or chair or both) – Usually a subset of board, could include others as needed for expertise • WY NP law – committee of board can only consist of board members – Duties and authority should be defined

COMMITTEES (cont.) • Keep bylaws broad enough so amendment not needed for every committee appointment or change – May list names of standing committees, w/ authority to appoint ad hoc committees – May provide general statement of authority to appoint committees & refer to policy documents for composition, duty description, make-up, length of existence, etc.

COMMITTEES (cont.) • Suggested clause: “The board shall have the right to appoint and determine the composition and authority of such standing committees and other committees and task forces as it deems necessary from time to time. Such committees and task forces may be described in separate administrative regulations or in resolutions of the board.” – Better Bylaws by D. Benson Tesdahl

COMMITTEES (cont.) • Task force, work group – temporary, less formal group assembled to deal w/ specific task • Some organizations write a “charter” for each committee or task force, outlining composition, organization, duties, authority , duration, etc.

COMMITTEES (cont.) • Common NP standing committees – Executive – Finance – Audit – Governance

• “A situation in which a director or officer has divided loyalty.” – Better Bylaws by D. Benson Tesdahl • Duty to act in best interests of board or organization – Becomes of special concern when you, your family, your business, or another organization you represent will benefit from a board decision • Not illegal, sometimes unavoidable

(cont.) • IRS: “…purpose of a conflict-of-interest policy is to protect the nonprofit organization‟s interest when it is contemplating entering into a transaction or arrangement that might benefit the private interest of one or more of its officers or directors.” - Better Bylaws by D. Benson Tesdahl

(cont.) • Policy set forth in bylaws defining conflict of interest and outlining process when it occurs – Or reference conflict of interest policy document • For easier & more efficient changes and adjustments

(cont.) • Minimum policy should: – Define in general terms what a conflict is – Require disclosure to full board of actual or potential conflict – Have board decide (w/ counsel, if needed) if conflict exists – Preclude director from participating in discussion or voting on any conflicting transaction

(cont.) • Wyoming Law – Director not to engage in any discussion concerning the matter, influence any of the parties, or vote on the matter (W.S. 6-5106(b)) – Best not to even be present during that agenda item – leave the room

CODE OF ETHICS • Expectations for ethical conduct of officers & directors • Bylaws may include a statement or reference a separate document – May include disciplinary code of action – May include nondiscrimination statement • Federal & state laws prohibit certain unethical or discriminatory actions whether included in bylaws or not

INDEMNIFICATION • NP – required to indemnify (pay) officers and directors for expenses incurred in defending any proper action of board • P – indemnification covered by governmental entity • Even though required, many organizations place indemnification statement in bylaws for clarity

INSURANCE • NP – should strongly consider directors and officers (D&O) insurance – Covers liability unless convicted of criminal action • Review carefully – usually contains several exemptions – Also covered by WY NP volunteer immunity statute (W.S. 1-1-125) – Policy statement in bylaws

INSURANCE (cont.) • P – covered by governmental liability umbrella – As long as performing assigned duties in good faith

OTHER PROVISIONS • NP – IRS Form 990 – Asks if following governance policies in place? • • • • • Conflict-of-interest Whistleblower Document retention & destruction Executive compensation Joint venture

OTHER PROVISIONS (cont.) • Vacancies on board – NP – outline procedure for filling vacancies occurring before end of term – P – outlined in statutes, resolutions, ordinances, procedures • Removal of board members & officers – NP – outline conditions necessary for removal & procedure – P – outlined in statutes, resolutions, ordinances, procedures

OTHER PROVISIONS (cont.) • W.S.9-2-410. – “All public records are the property of the state. They shall be delivered by outgoing officials and employees to their successors and shall be preserved, stored, transferred, destroyed or disposed of, and otherwise managed, only in accordance with W.S. 9-2-405 through 9-2-413.” – Reference WY Dept of State Parks & Cultural Resources, or County or City Clerk for details • Provide bylaw statement of how records are to be handled

AMENDMENTS • Bylaws must change as operations change – Operations in violation of bylaws are illegal – Cannot ignore bylaws because they are inconvenient, incomplete, outdated – Actions of boards & organizations have been voided by courts because they did not follow their own bylaws

AMENDMENTS (cont.) • Review regularly – Recommended every other year – Whenever governance problems or changes arise – Committee, legal counsel, committee-of-thewhole

AMENDMENTS (cont.) • Include clause in bylaws detailing exactly how they may be changed – Whether amendments can be made by board or members (NP) – How changes are developed & reviewed – Is advance notice required before vote for approval? How long? – Whether changes can be approved at meeting or with mail ballot (NP) • All business must be at public meeting if public board – Vote required for approval • Majority? Supermajority?

AMENDMENTS (cont.) • Each revision dated upon approval of organization – Date of amendment recorded in minutes • NP – file amended copy w/ IRS Form 990

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