Non-profit 101: Articles of Incorporation

“Ugh, didn’t we just go over these a few years ago. “

“They are fine. They were written in 1985 and have stood the test of time. They don’t need revision.”

“Don’t worry, we Googled something on how to do it.”

“My sister’s brother-in-law is has been on lots of nonprofit boards in Michigan and he wrote them for us.”

“I’ve never seen them. I have no idea where they are… check the green file cabinet in the bathroom.”

Sound familiar? The initial writing, ongoing review and revision of a nonprofit’s articles of incorporation is never at the top of anyone’s to-do list. Yet, they are very important…

What are “articles of incorporation”?

In order to be a recognized nonprofit corporation in Minnesota (and other states), you must file the appropriate paperwork to become a legitimate corporation. As we discussed in the last post, to be a nonprofit corporation, you must be “formed” for a charitable purpose. The articles of incorporation contain the basic information about the nonprofit corporation. Minnesota Statutes Chapter 317A.111 provides the legal requirements for what needs to be included in the articles of incorporation. The Minnesota Council for Nonprofits provides a basic template for drafting nonprofit articles of incorporation, found here. Along with the articles of incorporation, the nonprofit should also create bylaws. Bylaws are the rules of how the nonprofit governs itself. They are not officially required by law, BUT without them, the nonprofit bylaws legally default to the Minnesota Statute 317A.

Okay, but why should I care?

The articles of incorporation and bylaws are probably the most important documents to a non-profit during its formation and throughout its lifetime.  The Minnesota courts have consistently held that a nonprofit board derives its authority ONLY from two sources: the state via statute (Minn.Stat. § 317A) or the corporation via its articles of incorporation or corporate bylaws. And, listen to this – a board member has NO authority to act individually unless specifically authorized by the articles of incorporation or bylaws. Here is where things get really scary… the Minnesota Courts view articles of incorporation like contracts. In actuality, Minnesota case law states that articles of incorporation are legally viewed as contract between the State and the corporation (non-profit), as well as the shareholders (members/directors), and they should be legally interpreted just like contracts.

But, I thought contracts were a good thing?

They are except… think about a time when you entered into a contract (e.g. new roof, buying a car, new cellphone). You probably cared about some of the terms, but not really. You signed the contract, you didn’t consult with an attorney about anything that seemed questionable, you had places to go and needed that new cellphone. Ah, but months later when something happened or the bill didn’t seem quite right, where did you go? The contract! Oh, you didn’t see the fine print. Oh, it says nothing about your issue. Oh no!!!

Contracts are important, particularly when you get into legal disputes and the court is tasked with interpreting them. If the contract was well drafted  (i.e. terms are well defined, it’s clearly written, etc.) it is deemed unambiguous and the terms of the contract are controlling. This means, if articles of incorporation and bylaws are found to be unambiguous, the court will defer to what is written in the articles of incorporation and bylaws. If they are ambiguous (e.g. unclear), they are susceptible to more than simple, straight-forward interpretation. Instead, the court will turn to “other evidence” to determine intent. Needless to say, this is a BIG legal headache that we won’t delve into today.

Simply put, do a good job of setting up the rules and everyone can enjoy the game. It makes it easier to identify what is appropriate and what is not (e.g. who can vote, term limits, financial oversight, purpose of organization). From a practical standpoint, the clearer the documents, the easier it is to communicate to the ever-evolving board members, supporters, employees, and volunteers about the organization.

Should a nonprofit’s articles of incorporation and bylaws be updated or amended?

Just as fashions change, so do laws and regulations. Therefore, nonprofit articles of incorporation and bylaws need to be adapted and amended. It is ill-advised to rely on articles of incorporation and bylaws drafted during the golden age of television. Best governance practices recommend the review of a non-profit’s articles of incorporation every 3 – 5 years. Not only does it help the nonprofit keep up with changes in the law, but helps ensure ongoing good governance and compliance with the articles of incorporation and bylaws. Any updates or changes are referred to as “amendments” and need to be officially filed with the State of Minnesota.

 

 

 

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