Follow Bylaws To Protect Your Nonprofit From Board Litigation

Written exclusively for My Community Workplace for Not-For-Profits Organizations

The District of Columbia's Office of Attorney General (OAG) recently filed a lawsuit, hoping to settle a dispute between a nonprofit and the government agency that funds them.

The dispute began when the government agency's newly appointed CEO and director moved to replace the nonprofit's board of directors and some of its officers. The nonprofit's original board members challenged the CEO's actions, effectively bringing to a halt the nonprofit's ability to function. Thinking the CEO's actions were illegal, the original board informed the OAG in accordance with the District's Nonprofit Corporations Act. The OAG subsequently filed a lawsuit to resolve the conflict.

In the lawsuit, the OAG alleges that the government agency's CEO acted outside of his authority by appointing a new board, and therefore, the original board should be declared the nonprofit's valid leadership board. The OAG further alleges that any actions taken by the agency CEO with regard to the nonprofit must be nullified.

Confident his actions will be found lawful, the agency's CEO is moving forward with the appointment of a new director at the nonprofit. "Press Release: AG Racine Files Lawsuit to Resolve Presence of Dueling Boards at District Nonprofit Open Technology Fund" thedcline.org (Jul. 20, 2020).

Commentary and Checklist

A nonprofit must operate under its articles of incorporation and its bylaws, in addition to state laws and any applicable government rules and regulations.

Federal rules come primarily from the Internal Revenue Service and focus on tax exemption status requirements. State laws typically address a nonprofit’s establishment, operation, and dissolution processes.

Disputes like the one in the above case can be avoided by focusing on the basics. Follow the bylaws. If changes are necessary or desired, amend the bylaws through a lawful process and within the lawful purpose of nonprofit’s mission.

Here are some suggestions that can make your bylaws an effective tool to foster success and alleviate conflict:

  • Consult an attorney to be sure your bylaws are thorough and compliant with state and federal law.
  • Avoid including details that change, like fundraising or marketing guidelines.
  • Be sure to tailor your bylaws to the purpose and size of your organization.
  • Make certain you appropriately use the words "shall" (required) and "may" (optional).
  • Review your bylaws every year to be sure they continue to be applicable and express the nonprofit's mission. This is particularly important as a nonprofit grows and adds new programs.
  • Make your bylaws available to the public to strengthen your nonprofit's accountability with donors, supporters, and beneficiaries.
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