Organizational Details
By-laws provide you with the opportunity to create an ideal world. Within a generally accepted framework, your organization is free to decide how you will select future boards of directors, handle meetings, establish committees, hire staff, manage finances, and conduct business. One of the earliest documents your organization will draft, by-laws are created before the stress of running an organization makes crafting a well-designed set more difficult.
Building the DocumentThe first few sections of your by-laws should cover housekeeping details. You need to state the formal name of the organization and the location where you conduct business. You can find sample by-laws on the CD that comes with this book. Modify them as you see fit. After you cover the basics, it's time to detail the main parts of your organization's operation.
As you develop the language for your organization, find a middle ground between being specific and allowing for necessary flexibility. Although the board may amend the by-laws as needed, it is good to have some flexibility already built into the document to avoid changes that can waste time.
By-laws should follow a certain format so your mission is clear to three specific groups: staff, volunteers, and the board of directors; your donors; and the IRS. If you follow the examples on the CD, you will meet the needs for each group.
Operating the Organization as a CharityYou must state in your purpose that you are a charity. The language must be clear so your future financial supporters understand exactly what you are planning to do.
You must establish positive relationships with these people in order to meet the IRS requirements to become and remain a public charity. Your supporters will want to be assured that your commitment to certain core principles that appear in your by-laws align with their values as well. The philanthropic community will often evaluate these basic elements well before any consideration is given to actual requests for financial support. The funding community will want to know that your organization understands the meaning behind the words public charity.
Understanding What a Charity MeansThe IRS looks at an organization's by-laws to determine whether it is operating as a public charity. By definition, a public charity must receive a substantial part of its support in the form of contributions from publicly supported organizations, governmental units, and/or the general public. In addition, no more than one-third of support can come from investment income, and more than one-third of support must come from contributions, membership fees, and gross receipts from activities related to its exempt functions.
Translated from IRS jargon, a membership-fee organization, such as an arts group with box office revenue, is a publicly supported charity because a large percentage of its revenue comes from public contributions.
Does the IRS require specific language in the by-laws?
The IRS does not require any specific language, but you must include a copy of your by-laws with the application for tax-exempt status. The IRS will review the by-laws to ensure there are no discrepancies with your other material and to further document your intentions.
For your board and membership, by-laws tend to reinforce exactly what the organization is and is intended to do. Whereas the language in your articles of incorporation were to a large degree mandated by state law or IRS regulations (especially if your organization is applying for federal tax-exempt status), your by-laws reflect who you are as an organization, where you want to go, and how you intend to get there.
