I incorporated a not-for-profit organization (religious/cultural) in January of 2004. I was the incorporator and I appointed 3 other members to the board of directors. In the beginning, the directors were not interested in running the organization because of the organization's lack of funds. I was in full control. Now, the organization owns real estate worth $400,000 and has big commitments to build a center! The other directors now are trying to reshuffle things and gain more power. I believe the other directors are steering the organization away from the objectives that I have set. Right now bylaws are non-existent. What can I do?
This is the classic, and not untypical, case of whose organization is it? (See Ready Reference Page: “The Key Question: Whose Organization Is It?”) The answer to your question depends on the powers of an incorporator under your state’s nonprofit corporation law. But in general, once the incorporator(s) form the entity and invest operational powers in a functioning Board, the incorporator(s) have no further authority, responsibility, or liability. If that is your situation, you are merely one of four directors with equal authority and can’t make the unilateral changes you desire. They may also have the power to remove you over your objection.
Founders can avoid this situation if they establish a single member nonprofit corporation and name themselves as the sole member. The sole member can have the full power to select and terminate members of the Board and amend the Articles of Incorporation and bylaws. With a sole member structure, the founder can assure that his or her vision is followed by replacing anyone who is not generally in support of the program.
Even where nonprofit corporation statutes (and the recommendations of the Nonprofit Panel (See our July 1-15, 2005 lead story - "Nonprofit Panel Recommends Changes To Improve Transparency, Accountability")) require a certain number of independent members of the Board, they do not normally prohibit a sole member structure which gives ultimate control, even if not day-to-day control, to a single person or small group of persons.
Update: New York has changed its Not-For-Profit Corporation Law to prohibit a single member nonprofit corporation when the single member is an individual. —Don Kramer
For more information on Sole Member Bylaws, Nonprofit Issues subscribers can access the Ready Reference Page: Sole Member Bylaws Can Protect Founder of Nonprofit. Non-subscribers can purchase the document in the store.
Tuesday, November 20, 2007
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