Revisiting Your Club’s Governing Documents

I always find it interesting when speaking with clubs to hear how long they have been in operation. It is not uncommon to hear that they have been around for 50+ years. That is exciting to hear because it means they have members who believe in the club’s purpose and are dedicated to keeping the club going. However, it also makes me a little concerned. Many clubs are non-profit corporations. When they were formed, they filed nonprofit Articles of Incorporation with the State of Michigan. In addition, the clubs’ members or directors typically adopted bylaws (sometimes called a “constitution”). These two governing documents are very important to a club’s operation.

My first concern is that governing documents are drafted with the existing laws in mind. Therefore, as
the laws change it is a good idea to revisit your governing documents to see whether they need to be
updated. It’s hard for clubs to keep track of changes in the law, but a policy to periodically review a
club’s governing documents should do the trick. The club may find that it needs to update its
documents to comply with the law or it may want to update its documents to take advantage of
recently changed law. For example, a nonprofit corporation might want a provision that requires the corporation to protect an officer or director from any lawsuit brought against the club (unless the officer or director acted in bad faith). If the corporation wants to require this protection, that provision must be in the Articles of Incorporation. The same is true for a provision that eliminates liability for a volunteer officer or volunteer director (unless the volunteer acted in bad faith). These two provisions are very attractive to officers and directors, and some potential officers and directors will not serve without the provisions in place. However, when we review Articles that were drafted long ago, and even some that were drafted recently, we often find they do not contain these two provisions.

My second concern is that clubs commonly draft their own governing documents and sometimes fail to include certain important provisions. Frequently the club officers or directors do not foresee a reason to have extensive or detailed bylaws. However, as time goes by and more people join the club, the potential increases for problems between the club and its members or between the members themselves. If a problem escalates, it may be necessary to remove a member from the club. If the bylaws are not thorough they may not address removal of a member. If member removal is not addressed in the bylaws or any other document, it can become very difficult to resolve the problem. A quick review will tell a club if this situation is addressed and if it is not, the bylaws may need to be amended to add a provision for member removal.

The above examples are just a couple of reasons why governing documents should be reviewed periodically. There are other reasons, such as documents being in violation of a current law, or issues arising that should have been addressed in the documents but were not. Clubs should periodically review their governing documents no matter how long ago they were written. Even new clubs can have improperly drafted or less than thorough governing documents. However, before any action is taken to amend a governing document, a club should make sure it has thought out the consequences of the revision and should make sure that the revision does not create other problems (like violating a tax exempt club’s tax exempt status). Therefore, a revision to a governing document may not be a do-it-yourself project and legal assistance may be needed.

– J. Kevin Winters

Photo Courtesy of MiBiz