What Can I Do If a Nonprofit Isn’t Following Its Bylaws?
This is another question that visitors often have for our Ask Us team. Curiously, I’ve had a hard time finding a succinct answer to this seemingly simple question. Corporate attorney Paul Davis Fancher of Troutman Sanders presented a free webcast on nonprofit bylaws hosted by Pro Bono Partnership Atlanta last month that addressed this question. Here is Mr. Fancher’s response (with some additions from other articles on this topic).
Confirm your suspicions
State laws allow nonprofits great flexibility in the contents of their bylaws, so don’t assume that all nonprofits govern themselves the same way. For the org in question, review its bylaws and policies to confirm if the questionable action is indeed a violation. Also look at the state law for nonprofit corporations for where the org is based. (Find links to nonprofit laws for each state in our Nonprofit Startup Resources by State web area.)
Assume innocent ignorance
In an ideal world, all board members really know and understand their bylaws and review them each year, but we know this doesn’t always happen. So, first assume that the individual board members, board, or organization may not even know that they’re violating their bylaws.
Aim to resolve the issue amicably
If only one or two people are involved, talk about your concerns with the individual(s) first. If it truly is an innocent mistake, they probably would appreciate your care and effort. Point out the section(s) of the bylaws and state law that are relevant. Stress that bylaws are legally binding, so their noncompliance puts the org at risk.
If a direct approach is not practical or comfortable, discuss your concerns with the board’s chair or secretary and enlist his/her help. Of course, keep detailed written records and communications of every interaction, just in case.
What if the wrongdoing is by the chair or secretary, or if the issue isn’t getting resolved? Discuss your concerns with another board member. The “Three Ds” for directors — duty of care, duty of loyalty, and duty of obedience — require them to bring possible legal violations to the full board so that they are all aware of the issues and can address them quickly and effectively.
Know when to get legal help
While most issues can be resolved within the organization without harm to the organization’s morale or reputation and without incurring heavy legal expenses, this is not always the case. If the board has decided that an individual board member or officer must step down or be removed for continued non-compliance, the board should have a clear understanding of the org’s bylaws and state law, both of which should address removal of directors.
At this point, the board may want to seek legal advice. (See this article for tips on how to find legal services for nonprofits.) If the entire board is in violation or is not being responsive, that may be grounds for a lawsuit or other formal legal action that may require involving external authorities. Again, seek legal advice about how to best proceed in order to resolve these issues.
Nonprofits: Take your bylaws seriously
So what can nonprofits do to avoid noncompliance issues with their bylaws? Many examples of bylaws are online, but don’t just copy and forget them. Our article on bylaws points to how-to guides as well as samples. At minimum, bylaws are a playbook of sorts that can help your org resolve internal disputes. Without them, disputes tend to grow out of control. Provide new board members and key staff an orientation packet that includes the bylaws. Follow up with a group or one-on-one session to address any questions that arise after reviewing its contents. Review bylaws at least once a year to ensure that bylaws reflect your org’s practice. If you don ‘t have the resources or knowledge to do this internally, consult legal help.
Remember that directors & officers (D&O) insurance and corporate indemnification have limits: “In most states, fulfilling one’s fiduciary duties is a prerequisite to a statute that basically says the board members can’t be held personally liable for their mistakes so long as the mistakes were made in good faith, out of loyalty and obedience to the corporation, and with due care. By failing to fulfill their fiduciary duties, directors risk personal liability for any harm caused by their actions.” (1)
At most, bylaws are legally binding documents that orgs must submit to IRS and state agencies, as well as some foundations. So: “Follow the provisions religiously. You not only have a duty to understand your bylaws, you are legally accountable for following them. This is not optional. A court of law will side with your bylaws in any dispute brought by another board member, an employee, volunteer or recipient of services who may have a grievance.”(2)
Sources:
- Carter, Ellis. “Ultra Vires Acts: Why Nonprofits Must Follow Their Articles & Bylaws“. CharityLawyer. July 24, 2010. Retrieved Dec. 9, 2014.
- McKay, Greg. “Nonprofit Bylaws – The Dos and Don’ts“. Foundation Group CEO’s Blog. Dec. 1, 2010. Retrieved Dec. 9, 2014.
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Jacqueline McCarthy says:
Hi, I am the president of a theatre group, and the management committee and I decided to change the date of the members meeting from the Wednesday night to the Saturday afternoon. Our members meetings includes a showing of the current production and it isn't ready to go yet. We posted the changed arrangements last night and a member has complained that our constitution says we have to give 7 days notice of a change of meeting. What happens if we go ahead with the meeting on Saturday.
Steven D Alston says:
Hi great article Sandy can you please tell me how to access information about the rights of board members of a religious corporation
Sharon Mckinnon says:
Our board and Cpm are not adhering to our by laws for an upcoming election. Where do we turn to for help?
Patricia Burt says:
I am the secretary of a Home Owners Association consisting of 11 homes with the potential of growing to a total of 14 homes. We share a common lake shore access lot. The developer of our subdivision created it as a non-profit organization in 2002. The HOA was not activated until 2014, when 6 homes were built in this area and the developer deeded that lake shore lot to the HOA. As a group we were aware of covenants and by-laws, but the focus was on covenants. We have annual meetings, elect 4 officers etc. BUT now I learned that we have not operated by the by-laws at all. Instead of officers, we were supposed to elect 5 Board members that the Board was to appoint the officers. We don't have that many families, plus many are busy with children, jobs etc. No one is harmed, the subdivision is not harmed at all but to clean things up- can we withdraw our by-laws?
myron kyle says:
If you have a veterans organization that is a 501c3 and falls under the State of Ohio's laws, and that organization blatantly violates its bylaws what can happen to that organization, example, bylaws state they will have an annual membership meeting once a year in and around a specific date and one is not conducted until 6 months later and several months into the following year?
Kate, Digital Communications Manager, Candid says:
We can't specifically comment on whether actions are against bylaws. We suggest following the steps outlined in the blog post above to determine next steps.
Michael Peters says:
My fire department is a volunteer department, and in the bi-laws it states that a member is to be with in an area close to the department. Tow of the board members and two of the department's line officers. Was wondering if this is a violation of the bi-laws
Kate, Digital Communications Manager, Candid says:
As per the article, you should seek legal help or reach out to the IRS with your complaint.
Rodney Pienaar says:
I'd like to know where can I direct my complaint to when the bylaws do not follow proper way processes.
Kate, Digital Communications Manager, Candid says:
If your PTO is a nonprofit, it follows the same guidelines and you can use the steps outlined in the article.
Jessica says:
Do you know how to report a PTO? (parent-teacher organization)
John Dauksts says:
Good Day
I am a member of a nonprofit sportsman’s club, our board of directors are not following the bylaws and creating their own interpretation. Some of their activity is also illegal. Members have ask board members to step down and they refuse. At the last membership meeting a motion of non confidence was made and seconded and nothing is being done. What are our next steps to take back our club ?
Thank you
Kate, Digital Communications Manager, Candid says:
If you believe that a nonprofit organization is acting unlawfully or improperly there are governmental authorities and consumer organizations with which you can share this information.
At the state level, contact the government agency responsible for nonprofit oversight. A list of state oversight agencies can be found on the NASCO website.
At the federal government, the Internal Revenue Service recommends that written complaints about the activities or operations of tax-exempt organizations that are inconsistent with their exemption should be sent to:
Internal Revenue Service
Exempt Organizations Examination Division
1100 Commerce Street
ATTN: T:EO:E
Dallas, TX 75242
The IRS complaint should contain all relevant facts concerning the alleged violation of tax law.
Another reporting resource available to you is the Better Business Bureau, which offers an inquiry and complaint filing procedure.
Marie says:
An organization I worked for in Missouri failed to send out its annual membership renewal forms. It’s required by their own constitution.
Can they be fined? I used to work for them and recall it was a massive effort on my part. I’m no longer there and see many things per the constitution that they do not follow. Is that legal? I’m also a voting member. Can I complain to any state agency?
Kate, Digital Communications Manager, Candid says:
Great question, reach out to our team here: https://learning.candid.org/ask-us/
JC says:
What to do if the non-profit cannot present their bylaws? They are 'lost?'
Kate, Digital Communications Manager, Candid says:
We can't comment on legality, however we'd suggest following the steps outlined in this article. If you're looking for legal help with this, see our article on the topic.
Enola Edwards says:
I'm a member at this place called People Incorporated I go to the (NCSP-Northside Community Support Program) in north Minneapolis. Here's what I need help understanding in mental health centers your not allowed to use profanity or racial slurs,. With the old staff that NEVER happened, the center had 30-40 members coming in every day of the week. Then the board fired all the staff(without notice) told all the members that the government cut their funding that's why the staff were fired. Two months later this same center got new furniture and painted the walls and got new carpet throughout the Building. Plus a racist white woman(who's married to a black man so playing music with racial slurs in it is perfectly fine) works there along with two other staff who have no experience in mental health. On top of that the staff (people incorporated is paid for by Medicare) write people's names down who haven't been there and their insurance pays for that person to be there for that day. I have had members tell me that they have seen my name on the sign in list when I'd didn't even show up that day. Is this illegal? I just need to know the board of the company knows the staff are doing this and haven't stopped them yet.
Kate, Digital Communications Manager, Candid says:
A good place to start is our Knowledge Base article on recruiting board members.
B Addison says:
I live in a POA that is not following the rules. The bylaws states the board can only be elected three year staggered term. Out board has been in for several years and anyone who try’s to run loose. How do we get fresh board members in. And how do we get them to follow there rule.
Dawn Kitai says:
How helpful that you talk about how it is good to have how-to guides for the bylaws and samples to help you to keep up with them. I want to start a nonprofit this year to help with multiple sclerosis. I will find a great nonprofit compliance service to help me with that as well. https://www.legalforgood.com/government-compliance