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Mind Your Members: What Nonprofits Need to Know about Members�March 11^th Webinar�Presented by Hemenway & Barnes LLP

Madeleine Morgan

Programs and Services Manager

Thanks for joining us! A few instructions before we begin:

You may join the audio by selecting the radio button for either “Telephone” or “Mic & Speakers.” If you are using telephone, please dial in with the conference line and audio pin provided.

If you are having any technical issues, please let us know in the chat box.

We will have time for Q&A. Please enter your questions in the chat box at any time.

This webinar is being recorded, and we will distribute the recording after the webinar.

www.massnonprofitnet.org

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Brad Bedingfield

Eleanor Evans

March 11, 2020

Mind Your Members:

What Nonprofits Need to Know about Members

Massachusetts Nonprofit Network Webinar

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Overview

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Polling Question #1

Does your nonprofit have members?

Yes

Not sure

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Confusion around Members

The term “member” is often used loosely, leading to confusion about:

Does a nonprofit have members?
Who are they?
What rights do they have, if any?

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Confusion around Members

Some nonprofits…

(Especially older ones) don’t intend to have voting members but actually do and don’t realize it
May call donors “members” but not give them voting rights
Are formed to serve and be governed by members and choose to have voting members as well as a board of directors

�Confusion re: terminology

Board members (i.e., directors) vs. members

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State Nonprofit Corporation Law

State nonprofit corporation law sets “default” rules�

Takes precedence over Articles of Incorporation and Bylaws�

Any provisions in Articles and Bylaws inconsistent with nonprofit corporation � law will be invalid

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Articles & Bylaws

Articles of Incorporation

Filed with the state to create the nonprofit corporation

Take precedence over Bylaws

Bylaws

Spell out procedures for action by members (if any) and board of directors

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Law & Current Practice

Many states used to require nonprofit corporations to have members
Most states permit – but no longer require – members
Trend is for nonprofits not to have members, but to be governed solely by a board
But some nonprofits choose to be governed by members and a board

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We Have Members?!

Older nonprofits may have:

Amended their Bylaws to remove references to members
Then stopped acting as if they have them
But may have overlooked the need to amend their Articles of Incorporation to do away with members

SURPRISE! These organizations still have voting members

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Polling Question #2

Do your nonprofit’s Articles of Incorporation mention members?

Yes

Hmm, I’ll have to check

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Nonprofit Boards vs. Members

All nonprofit corporations have boards of directors
Many nonprofit corporation boards are self-perpetuating
Some nonprofits also have members who may get to vote on selecting and removing directors and on other major corporate actions

Similar to shareholders in a for-profit corporation

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What Does the Board Do?

Oversees the nonprofit’s activities and assets

Selects officers and, for nonprofits with staff, an executive director/CEO

Delegates authority to them to manage the nonprofit’s day-to-day operations

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What Does the Board Do?

Other key board responsibilities include:

Determining the organization’s mission
Setting big picture organizational goals and making sure the organization is meeting them
Ensuring the organization has adequate resources to further its mission and goals (including fundraising)
Raising the organization’s profile in the community
Protecting the organization’s assets
Ensuring the organization’s legal and ethical integrity and maintaining accountability

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What Do Members Do?

Members have the right to vote on� important corporate actions such as:
Electing and removing directors
Amending the Articles and Bylaws
Approving the sale or transfer of all or substantially all of the organization’s assets
Approving a merger
Approving a voluntary dissolution of the organization

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What Other Rights Do Members Have?

Members usually also have the right to review certain information such as:

List of the organization’s members
Minutes of members’ and directors’ meetings and
The organization’s financial statements

In certain cases, members may have the right to sue to enforce their membership rights

Members may have other rights spelled out in the Articles or Bylaws

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How Do We Know If We Have Members?

Check the original Articles of Incorporation and any amendments

Also review the current Bylaws and all previous versions

What do they say about members and their rights at various points in time?

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Who Are Our Members?

People who pay a membership fee and receive a newsletter and discounts to the organization’s events?

Not unless Articles of Incorporation state that nonprofit has members
Bylaws usually spell out members’ voting rights in more detail

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Be Clear on Who Members Are

Note in Articles that the nonprofit has members
Detail criteria for voting membership clearly in the Bylaws
Make membership criteria specific and measurable
Keep number of voting members manageable
Note that low thresholds for becoming a voting member can lead to gaming of membership structure

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Polling Question #3

Who are your organization’s members?

Briefly describe qualifications for membership

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�Failure to Hold Members’ Meetings

Nonprofits that fail to hold members’ meetings and member votes on key matters risk having those actions invalidated

Example: Directors of a membership corporation were not properly elected by the members, meaning that all actions approved by the board could be challenged as invalid

Often not aware of issue until a major transaction, such as a merger

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�Board Meetings vs. Members’ Meetings

Be sure to hold separate board and members’ meetings

Even if directors and members are the same people
Follow procedures under state nonprofit corporation law and Bylaws for sending notice to each

Under some states’ laws, certain actions may require both board and members’ votes

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�Board Meetings vs. Members’ Meetings

Note that under state law, different rules may apply:

Members may vote by proxy, while directors generally can’t
Directors may meet by phone or video call while members generally can’t
Different notice periods for members’ meetings vs. board meetings may be required

Generally, no email voting for either directors or members

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�Becoming a Non-Membership Corporation

Hold a meeting or other vote of the members to remove references to members

Must be held in accordance with state nonprofit corporation law, Articles and Bylaws

Vote should adopt amendments to Articles (and, if applicable, Bylaws) removing references to members

Add language specifically stating the nonprofit does not have members for corporate law purposes

Amended (or restated) Articles must be filed with the state

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�Becoming a Non-Membership Corporation

Don’t know who your members are?

State nonprofit corporation law usually includes procedure for petitioning a state official to allow amending Articles when don’t know who all members are

Usually requires attempting to identify and contact members and giving notice of the proposed vote

Important to coordinate with state official and document what you did to contact and notify members

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�Take Aways

Check your Articles of Incorporation re: members

If you have members:

Be sure membership criteria in your Articles and Bylaws are clear and up-to-date
Understand members’ rights
Hold members’ meetings and get required member votes

If you no longer want members

Hold members’ vote to amend Articles/Bylaws
File amended Articles with the state

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Resources: FAQ and Podcast

FAQ: ABCs of Nonprofit Membership Corporations

Read here:�https://hembar.com/uploads/1280/doc/FAQs_Nonprofit_Member_Corporations_PDF.pdf

Podcast: Articles, Bylaws and Corporate Law: The ABCs of Nonprofit Membership Corporations

Listen here: https://hembar.com/news_resources/podcast-articles-bylaws-and-corporate-law-the-abcs-of-nonprofit-membership-corporations

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Contact Information

Brad Bedingfield

617-557-9704

bbedingfield@hembar.com

Eleanor Evans

617-557-9711

eevans@hembar.com