Good Counsel: Give Your Governing Documents A Checkup
Make sure your articles of incorporation and bylaws are in line with law and practice.
Your association’s articles of incorporation and bylaws are the most important documents prescribing how the organization is to be organized and operated. The articles document is essentially a contract with the state where your organization is incorporated (which may differ from where your offices are located) and takes precedence over every other governing document. The bylaws expand upon and must be consistent with the articles and often serve as an agreement between your association and its members.
Your governing documents must accurately reflect not only the law, but also the association’s actual operations, to avoid misunderstandings and to ensure that the organization is not bound to an unintended requirement.
It’s wise to periodically conduct a quick check-up of your governing documents. Focus on these areas:
1. Organizational purposes: Are purposes specified in the bylaws, and if so, are they consistent with the articles? An association may change its purposes and reflect the change in the bylaws, but forget to amend its articles with the state. If you specify in the bylaws that the organization’s “purposes are as stated in the articles of incorporation,” then amendments can be made just in the document that controls.
2. Membership voting rights: Do your articles and bylaws, in conjunction with state law, provide that your association has members with voting rights? If so, are the specific rights spelled out? For example, do members vote only to nominate or elect directors, or to approve major corporate transactions, or to amend the bylaws? And do these statements match the association’s intent?
3. Board action procedures: Most states require that a board take action only at a meeting where a quorum is present or by unanimous written consent. Most do not permit proxy voting but do allow directors to participate in meetings via teleconference. Ensure that your bylaws reflect the requirements of your state’s nonprofit corporation law (as opposed to the for-profit or general corporations code) and are followed.
4. Committee designations: Most state laws require that board committees—those groups that may exercise board authority—be composed exclusively of board members and be appointed by the board. Other committees and working groups may be formed through other channels and may include non-board members, but they may only make recommendations to the board for action. Check that your committee designations comply with state law and that your bylaws and committee documents are clear about what committees may exercise board authority and under what circumstances.