I recently read your Ready Reference Page on Sole Member bylaws and found it insightful. But it doesn’t specifically address my state law. My state requires a minimum of three board members for nonprofits. Do you have any thoughts on how well-drafted bylaws might still help protect a founder in my state under these requirements? I am the founder and CEO of a new nonprofit and would appreciate any thoughts you may have on my state.
I may have an early Christmas present for you. Yes, your state does require three members of the board of directors for a nonprofit corporation. But I don’t see any statement setting a required number of “members of the corporation.”
Many people confuse “members of the corporation,” who are analogous to shareholders of a business corporation, with “members of the board of directors.” They are very different positions, with very different rights and responsibilities. When there are voting members of a nonprofit corporation, they normally have the power to elect and remove the members of the board. That is the power that gives sole members the protection they need to assure that they can continue to pursue their vision and mission without the risk that the directors will decide to go in a different direction and throw them out. The sole member, acting like a shareholder of a business, can elect directors who support the program and, if necessary, remove them from the board if they don’t. That gives the sole member the ultimate power to control the direction of the organization and who leads it.
Most states don’t require members of the corporation, but I think all of them permit members of the corporation. New York is the only state that I am aware of that requires three members of the corporation if the members are individuals. I think that most states require three members of the board as your state does. But some states, including Pennsylvania, allow fewer directors if the provision is written in the governing documents. The number of directors is irrelevant, however, if there is a single member of the corporation who has the power to determine who those directors are.
Find an attorney familiar with nonprofit law in your state and see if your corporation can become a sole member corporation. If you don’t have members of the corporation now and have already named directors, you may have to convince the current directors to give up their power and amend the articles of incorporation or bylaws to create a membership class and give you sole member power. If you can make the change, it may brighten your holiday season for this year and for many more to come.
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