This second post in our four-part series explores the basic documents that establish the structure of a non-profit and its governance. It is axiomatic that nonprofits exist to create positive change, serving communities, and advancing societal betterment. Yet, even with the most altruistic intentions, a nonprofit can only succeed when it is built upon a solid legal and structural foundation. This foundation starts with the initial governing documents and key policies which establish the rules of the road and structure of the organization.
Articles of Incorporation
The first step to creating a nonprofit is filing Articles of Incorporation in your specific state. The key components of most Articles of Incorporation include:
- Legal Requirements: While specifics can vary from state to state, Articles typically include the name, location, classes of members (if any), and initial directors.
- Definition and Purpose: The Articles should include a definition of your core mission and purpose, including establishing that the purpose and mission fit the appropriate requirements that apply for your planned specific IRS exemption. At its core, the Articles of Incorporation is a document that legally establishes a nonprofit entity. It provides a basic framework, including the organization’s name, purpose, initial directors, and registered agent.
- IRS Prerequisites: To ensure eligibility for IRS approval of your organization, certain IRS requirements must be addressed within the Articles of Incorporation.
- Inurement Prohibition: The organization’s assets and income must be permanently dedicated to an exempt purpose. This means no part of the income or assets can benefit insiders, such as board members, officers, or key management employees.
- Conflict of Interest: It is vital to outline how potential conflicts of interest will be identified and managed. This ensures that the nonprofit operates for the public good and not for private benefit. Conflicts provisions are often addressed alternatively through policies.
- Dissolution Terms: You should include that the corporation’s assets will be transferred to a qualifying entity upon dissolution.
- Limitations on Political Action: You should include any specific limitations on the organization’s political activity, such as lobbying or direct political campaigns. These limitations should match those of your planned IRS exempt organization structure.
The Cornerstone of Governance: Bylaws
Once incorporated, the next significant governance document is the bylaws.
- Importance and Role: Bylaws act as an internal manual, guiding decision-making, defining roles and responsibilities, and establishing protocols.
- Key Elements and Provisions: A comprehensive set of bylaws touches on meeting frequencies, notice requirements, quorum requirement, voting procedures, officer roles, and protocols in case of potential amendments, and methods for selecting officers and directors.
- Adapting and Amending: An organization’s needs evolve, and bylaws shouldn’t be static. It’s crucial to review them periodically, ensuring they remain relevant and serve the organization’s changing dynamics.
Policies: Safeguarding and Steering Your Nonprofit
Beyond Articles of Incorporation and bylaws, various policies help steer the nonprofit, maintaining its integrity and guiding its operations.
- Conflict of Interest Policy: This policy lays out procedures for addressing situations where an individual’s personal interests might conflict with the organization’s interests.
- Whistleblower Policy: To maintain an environment of transparency and accountability, this policy protects individuals who come forward with reports of organizational improprieties.
- Document Retention and Destruction: With legal obligations to retain specific documents for set durations, this policy outlines which documents to hold, how long to keep them, and the protocols for safe disposal.
- Compensation Policies: Especially for top management, this policy ensures that compensation is fair, reasonable, and in line with industry standards.
A nonprofit needs passion and drive in its founders and volunteers to succeed. Passion alone is not enough. You need a well-defined organizational structure. You need documents and policies that meet both your governance needs and the requirements imposed by the IRS for exemption approval. The above foundational elements ensure that the organization is built on solid ground, with clear governance structures that foster growth, transparency, and impact.
If you have questions about nonprofit issues, please feel free to reach out Timothy Hughes at Bean, Kinney & Korman, P.C. at (703) 526-5582, email@example.com. Our firm practices in Virginia, Maryland, and the District of Columbia in addition to various other jurisdictions.
This article is for informational purposes only and does not contain or convey legal advice. Consult a lawyer. Any views or opinions expressed herein are those of the authors and are not necessarily the views of any client.