Keeping Your Governing Documents Up to Date
Making sure your four key governing documents are aligned will help you define the day-to-day operations and goals of your board.
When was the last time you reviewed your governing documents to make sure they are aligned with one another and your mission?
Governing documents—including state corporation acts, articles of incorporation, bylaws, and policies and procedures—fit into a hierarchy in which each document must be consistent and compliant with the documents above it. When there are inconsistencies, the higher document takes precedence.
It is important to review each document and your hierarchy to make sure they are aligned. While doing so, remember the following details.
1. State Nonprofit Corporation Act
For the top level of the governing document hierarchy, look to the state where the nonprofit was incorporated. A state’s statute on nonprofit corporations will supersede any provisions of an organization’s other governing documents. The statute will also contain default rules in areas the other documents may not address, and those rules should be looked at in case the organization wants to override any of the stipulations, which can be done via provisions in the organization’s bylaws.
Associations need to make sure other governing documents don’t permit practices that are prohibited by their state statutes. Because statutes vary from state to state and can change, make sure you review the state requirements when you draft any new governing documents.
2. Articles of Incorporation
The articles of incorporation are below state statutes in the hierarchy. They set forth the name and purpose of the organization and often other information, such as the voting rights of members, the composition of the board, and rules for dissolution—all of which must be consistent with the state nonprofit corporation statute.
In the articles, it is specifically important to review the clauses related to purpose. Clauses formed may no longer reflect the purpose today, and the purpose clauses in the articles of incorporation and bylaws must be consistent. When they differ, the articles of incorporation take precedence.
Next are the organization’s bylaws. These should be closest to the reality of the association’s practices.
They don’t need to be so specific as to require frequent amending, but they also shouldn’t be so vague that they create uncertainty. It’s fine if, for example, the bylaws call for annual membership meetings, but in reality they may not occur every year. But it would be an issue if the bylaws don’t contain provisions, for example, for removing a board member and refilling his or her position. Make sure bylaws address as many foreseeable scenarios as possible.
4. Policies and Procedures
These are the lowest on the hierarchy and are designed to fill in any holes in the documents above them. When changes can be anticipated to occur fairly regularly, the bylaws should give only general guidance or minimum requirements and the details should be left for policies and procedures. For example, any changes to dues or the number and titles of directors should be left to these documents.
To read more from AH, visit our blog at info.ahredchair.com/blog.