Bylaws 101
Bylaws are rules made by an organization or corporation to govern itself, as allowed or provided for by its articles of incorporation or the laws of the jurisdiction in which it is incorporated. These rules govern the management of an association by setting out the manner and method in which the association will conduct its business and the rights and powers of the members of the association. By-laws are adopted at the discretion of the association’s members.
There are no universal bylaws that grant the same rights or provide for the same government structure in every association. However, bylaws , regardless of form or wording, will typically contain provisions regarding: The information found within a set of bylaws will vary from association to association depending on their purpose and the laws of the jurisdiction where the organization is incorporated. For corporations and associations that have a large number of members, such as those that include shareholders and employees, bylaws are an important way in which the corporation can govern itself. For example, a non-profit or homeowner’s association will have a set of bylaws that determines the rules for elections, the board makeup and responsibility to members.
Are Bylaws Binding on the Owners?
Bylaws are foundational documents that govern the administrative details of an association. However, their function transcends mere organizational structure. Bylaws have been described as "a contract between the Association and its members." (See Main Isle Landing Condominium Association, Inc. v. Heller, 287 N.J. Super. 367, 372 (App. Div. 1996)). Accordingly, bylaws establish contractual obligations, which means they can be both enforceable and routinely enforced by Courts.
To that end, bylaws have been upheld to require association membership of such that courts have found enforcement by means of specific performance (as opposed to, or in addition to, money damages). (See Faber v. Melo, 201 N.J. Super. 133 (Law Div. 1974)) In so holding, the court observed that the association may seek to enforce its bylaws by "an order to compel performance, such as a mandatory injunction." (Id. at 150).
This should not be interpreted to mean that bylaws are written in stone forever. On the contrary, bylaws must conform to evolving sections of the New Jersey Non-profit Corporation Act ("Act"), as well as relevant sections of state and federal statutes that impact non-profit governance. In this respect, bylaws can go from highly enforceable to unenforceable without proper amendment.
The key to enforcement is for the bylaws to be in compliance with relevant law. Generally speaking, bylaws addressing the powers and duties of the board, elections and voting, and assessments and special assessments, will almost always be enforceable. By contrast, bylaws that contradict statutory requirements, are unavailable (or lost) or otherwise fail to address relevant matters, will struggle to satisfy the specificity required for enforcement.
How Are Bylaws Enforced by the Association?
Ultimately, persistently violating bylaws is a violation of the full authority and supremacy of your governing body. Generally speaking, bylaws carry the legal weight of law and must be adhered to in every context necessary. On the other hand, if a business or organization in a community engages in risky or illegal activity, it can be challenged by your governing body on the way in which they handling the circumstances surrounding this activity. Board meetings are often not aggressive enough when addressing breaches of legal compliance in bylaws. If a decision by an organization and is not in accordance with its written bylaws, you have every right to intervene. By ensuring that bylaws are being followed, you are ensuring that the governing body retains its integrity and respect. Existing enforcement mechanisms for bylaws can be found in the bylaws themselves or other relevant policies. These mechanisms outline the ability or responsibility of a governing body to enforce bylaws, adopt additional policies, or impose penalties for violations, including termination. In the absence of stated enforcement mechanisms, governing bodies may take legal action against officers or directors for violations. The processes available to challenge or prevent bylaws violations include mediation and litigation of non-compliance.
Challenging the Legality of Bylaws
Bylaws are not immune from legal challenge, either from within your organization or from outside it. The most common legal challenges arise in the context of a dispute over the meaning of a specific provision, the validity of certain actions taken under the bylaws or the constitutionality of a provision. Often these cases have significant factual underpinnings or an underlying public interest.
The manner in which such disputes will be resolved depends entirely upon the nature of the challenge. If, for example, the challenge is based upon the assertion that the bylaws deny certain constitutional rights to specific members of an organization, then the resolution may require detailed factual findings as well as interpretation of relevant Supreme Court jurisprudence. Disputes arising out of the dissolution of a non-profit particular are governed by a separate statutory scheme.
Most often, however, disputes over bylaws arise out of a simple disagreement over their terms. These disputes are most often resolved at the board level, and if unable to be resolved, then by a majority or supermajority vote of the membership. In some organizations, the "ultimate" step involves arbitration or mediation.
In the last resort, disputes over whereabouts to begin a remaking of the bylaws or the validity of a given action may find their way into a court. Obviously each state, as a matter of law, will deal differently with such issues. Courts generally will strive to uphold a set of bylaws if they can be shown to be fair, legal and properly adopted (this does not mean all courts; in some jurisdictions, certain courts will not enforce a non-profit’s bylaws at all). Even when the bylaws are clearly legal, sufficiently bad faith on the part of the organization may find it difficult to obtain judicial relief, particularly if the member or shareholders do not prove damages.
Penalties for Members who Violate the Bylaws
If a bylaw has been duly adopted, or if it has not been challenged and declared invalid, how is violation, or alleged violation, addressed? Associations have several methods of dealing with the violation of bylaws; some use informal measures, such as admonishment of violators, reminders to all members, and rotation of key officers from one office to another. Other associations employ more formal procedures to deal with violations — things such as private warnings, fines, hearings, suspension from services or committee membership, removal from office, and even suspension or termination of continued membership. Effective enforcement of bylaws requires more than just a policy statement regarding penalties. There should also be an overview of how violations are generally handled. If the association intends to rely on judicial enforcement, there should be an affirmative statement of the fact that all issues will be brought to court. If the association intends to handle all disputes internally , there should be an affirmative statement that court is not contemplated as a forum for dispute resolution. Some associations permit fines for violations. However, fines are generally not recommended. A fine system requires a particularized process to be effective and is impractical for most associations that lack the staff and resources for enforcement and collection. It can also produce divisive and stressful relationships amongst and between members. To avoid those problems, an alternative system that remains neutral and protects all parties is recommended. The best way to deal with a violation is with a private warning letter pointing out the violation and providing a deadline within which to correct the problem. Unless the ombudsman finds it necessary to seek formal enforcement, an informal warning should work to avoid a bad situation between the violator and others who are following the rules.
Drafting Enforceable Bylaws
First, it is important that bylaws be drafted clearly. Ambiguous provisions increase the risk that a court will decline to enforce them. Second, a sound starting point for boards is to review the bylaws of a comparable organization and incorporate relevant provisions into its own bylaws. Third, although bylaws may contain various provisions that are not strictly required by law to be in bylaws, it is best practice for organizations to include those that are required by law and exclusions of various powers of the organization. Finally, it is important to ensure that bylaws set forth the procedures necessary for adopting amendments and that the provisions that are intended to limit the access of members to the books, records and list of members require notice to the members of policies relating to a waiver of such access.
Conclusion: The Significance of Bylaws
Regardless of the type of organization, bylaws play a vital role in governing the behavior and actions of officers, directors, and members and shareholders. As such, bylaws should be seen as an opportunity to define expectations and enforce obligations on all involved. It is incumbent upon all organizations to recognize the terms incorporated in bylaws as legally enforceable agreements. Even when bylaws place limitations on the authority of officers or directors , these terms are nonetheless binding on the organization and third parties. When an organization fails to adopt bylaws, or neglects to include standard terms, it no longer enjoys the protections of having a clear and precise governance framework.