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)
- 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.