Have you reviewed your governance documents?

Have you reviewed your governance documents?

Now is a great time to review what is commonly called your organizational “governance” documents. Typically this includes the organization’s formation document, usually referred to as the “charter,” “Articles of Incorporation (AOI)” or “Certificate of Formation,” and the Bylaws, which might also be referred to as the “Constitution.” (Note: You do not need both, only Bylaws.) It is imperative that your organization's leaders and all governing board members—whether called elders, directors, or trustees—be intimately familiar with the provisions in these documents and follow them. If the governance documents do not exist, do not contain the correct provisions, or are not followed conflict, controversy, and even personal liability can ensue. As an example, early in 2024 a megachurch in Arkansas became embroiled in an all-too-public controversy when the church had no Bylaws—and, therefore, no rules to govern the dismissal or selection process of the senior pastor. The subsequent church split was not a good look for the Body of Christ. Please note: This article is limited to general highlights. Always consult a qualified, nonprofit attorney when reviewing governing documents.

Articles of Incorporation: Most churches and all nonprofits are business entities (usually nonprofit corporations) formed under their state’s Nonprofit Corporations Act. Most states follow some version of the Model Nonprofit Corporations Act (3rd ed. 2008). In order to become a nonprofit corporation, organizations must file a formation document. Under the Act, if the formation document is inconsistent with the Bylaws, the formation document will control. This Charter, Articles or Certificate of Formation contains important information required by both the State and the IRS tax-exempt provisions. This includes:

Statement of Purpose. For churches and faith-based nonprofits, it is important that the mission be written to clearly define the mission within the “religious organization” exception of many new laws. Expanding the mission to charity or even education, without more, could jeopardize this important legal status.

Members or No Members? This is an area of confusion for churches. State formation forms often require a nonprofit corporation to elect if it will or will not have “members.” The question refers to members under the Nonprofit Corporations Act and does not refer to what most churches call “members” of the church community—that is for religious purposes. Members under the Act have statutory rights that usually exceed the rights of members for religious purposes. Creating members with statutory rights can lead to administrative and management problems. If you have questions, or if your current formation document creates members under the Act, please consult your attorney for the effect this may have on your organization.

IRS Tax-exempt clauses. In order to obtain 501(c)(3) tax-exempt status, the IRS requires specific language in your formation document. This includes: 1) a distribution clause stating that organization assets pass to another charity for public purposes upon dissolution; 2) an exclusivity clause prohibiting (a) activities beyond stated 501(c)(3) purposes, (b) substantial political/campaign influence; and 3) private benefit and inurement.

Bylaws

Well-written Bylaws, specifically crafted to fit your organization’s practices, are essential to the effective management of any church or nonprofit. They promote internal harmony and unity, as well as compliance with state and federal law. While Bylaws may contain any number of rules for effective management, here are the minimum areas to be addressed:

• Statements of Purpose and Statement of Faith consistent with the formation document.
• Principal Office and Registered Agent information.
• A statement of whether there will be members under the state Nonprofit Corporation Act.
• Qualifications, selection, term, responsibilities (powers), filling vacancies and removal of organization’s managing board (directors, officers, elders, members (if members included)). This includes any standing committees that may have delegated powers.
• Time, place, calling, and notice of regular, special and/or annual meetings. Provision specifying parliamentary procedure. Provision allowing for electronic meetings, electronic signatures, and even voting by email as applicable.
• Voting rights and requirements of the managing body.
• Insurance requirements and indemnification clause for organizational management.
• Fiscal matters including year-end, audits, check-signing responsibilities, record keeping, gifts, and loans.
• Conflicts and confidentiality provisions and other prohibit acts.
• Organizational record keeping requirements.
• Provisions to amend the Bylaws.
• Provisions for Christian Dispute Resolution of conflicts.
• IRS Tax Exemption provisions (restating provisions required in the Articles of Incorporation).
• Exhibits could include the Statement of Faith, Board-related policies like Conflicts of Interest, etc.