Essential elements of a by law

The by law is a vital piece of document for managing the functioning of a non profit organization. The following  aspects of an organization’s by laws need to be looked into when drafting them at the time of incorporation of a non profit organization –

A) Number of  Board members – The by law should clearly spell the minimum and maximum number of members allowed on the board of the organization. What would then be the optimum number of members ? There in no ‘one size-fits all’ policy on this.

With Increase in number of board members, there is a decrease in the control over its functioning but an increase in expertise level of the organization.

When deciding the number of members on the board, keep in mind the following factors –

i) Requirement of specialists: If the mission of the organization is likely to require an interaction of  variety of cross disciplinary activities – the organization would have to consider setting up several committees. In such a scenario a suitable representation of each of the functions by qualified board members would be of help. For e.g – If an organization intends to work as a micro finance corporation – it may like to have on its board representation of individuals qualified in credit assessment, legal specialists, self help group specialists, financial experts etc.

If  the other hand the proposed activities of the organization do not require technical expertise, a small board member is ideal.

ii) Desired level of Control: Many a times, a non profit organization is the result of a vision of a dynamic leader. The leader might not want to dilute his control to keep the vision. In such cases it is good to have a small size of board.

The by law generally requires to mention a minimum and maximum number of board members. For increased flexibility this range can be kept wide enough.

B) Board tenure, terms and limits – The by law must specify the board terms and limits. As the board must continue in perpetuity, a common practice involves retiring part of the board members (say 1/4th) every four years in rotation.

The number of years for rotation is a vital decision as it will help the board remove unproductive bard members. Thus a smaller tenure means that board members have lesser time to prove their eligibility for re election. A smaller tenure however implies more frequent election procedures.

Another issue to be decided involves the maximum number of terms for which a member may be re-elected. If there is a shortage of  qualified members available for appointment on board, this should be kept at a higher number or should  be specified as unlimited terms.

C)Voting or non voting members – All members on the bard of an organization should not be given the voting powers. Members who merely represent themselves on the board to provide their technical advice generally should not be given voting powers. Voting powers should only be vested with members who are either full time members or are devoted  towards achieving the mission of the organization.

D) Election system – The by law should clearly mention the processes to be followed for Election. This is a vital clause as it has a direct bearing on the way the board of an organization develops over the period.  Some organizations set up nominating committee to undertake the function of nominating new members for election.  The nominating committee is generally headed by the president or some one who is aware of the contributions made by most of the members who are proposed for election t the board.

The eligibility to be nominated for election should be based on issues like –

a) The past service records of the nominee

b) The past attendance records of the nominee

c) Whether the nominee is devoted towards the objectives ?

d) Whether the nominee is adequately qualified ?

e) Can the nominee effectively handle the responsibilities?

This clause also answers questions pertaining to the voting system addressing issues like proxy voting, electronic voting etc.

E) Officers to be elected – The by law should clearly specify the designations and job descriptions for all the major officers to be elected from the board members .  A typical non profit organization may elect officers like  secretary, treasurer, chief executive officer, chief financial officer etc depending on the functions envisaged to be performed.

F)Amendment clause – The by law should provide for easy method for amendment of its routine clauses. However  clauses that are vital to the mission of the organization should have a moderate level of difficulty involved in their amendment.

G) Other Clauses – The other common clauses of a typical nonprofit by law include clarifications on Quorum, Procedure for giving notices, Rules for governing body meetings, rights and duties of members, committees to be formed and functions of each commitee (discussed elsewhere), merger provisions etc.

Conclusion –

Almost all states have their own Nonprofit Corporation Act. These Acts specify the statutory clauses that must be incorporated into the by laws of the nonprofit organization. A good starting point is to get a copy of your states Nonprofit Corporation Act and include answers to all the clauses of the Act in your by law.

A nice method to draft a by law for an organization is to build upon or modify an existing by law of a similar organization from your state, as opposed to drafting a fresh one. It is always easier and more efficient as it already covers a lot of desired information.

You should also get your by laws ratified by a qualified local attorney to avoid conflicts with any other law.