Drafting proper governance documents.

Association governance documents function as contracts. They must, therefore, be thoughtfully drafted and implemented.

Every association, regardless of its size, budget, mission, or location, must establish guidelines for its existence and behavior. Articles of incorporation, bylaws, and the policy manual are three such governing documents that also serve the function of contracts. Articles of incorporation form a contract between the association and the state government that permits it to be a corporation; bylaws are a contract between the association and its membership; and the policy manual is a contract between the association and its leadership and staff. It is vital that all of these documents are thoughtfully drafted and implemented, providing rules for the association, its members, and the leadership and staff. In this column, Thomas Arend explains the basics of association governing documents.

- Jerald A. Jacobs, ASAE General Counsel

Articles of incorporation, bylaws, and the association s policy manual constitute important underlying guidelines for association activities. Such governing documents contain many details that often have significant implications for legal, taxation, policy making, and other matters. It is useful, then, to review the basics of association governance documents.

Articles of incorporation

Because incorporation holds many advantages, the first step for any new or reorganized association is to draft, adopt, and file articles of incorporation - also called a certificate of incorporation or corporate charter in some states. The articles establish the basis for an association's separate legal existence as a corporation. The state grants such legal status in exchange for the organization's commitment, as reflected in its articles, to abide by the state's rules for corporations - primary among them that the association conduct itself in conformance with its stated corporate purposes.

The articles serve as the association's dominant corporate document. For this reason, the importance of careful drafting cannot be overstated. Generally the most useful and enduring articles are those that are clear and concise while avoiding unnecessary restrictions. Since state requirements to amend the articles can be burdensome and time consuming, a degree of flexibility allows articles to serve the association into a future that may require adjusting to differing activities and business environments without the need for amending them.

Although incorporation requirements vary, and most states apply specific stipulations to nonprofit corporations, certain provisions are prerequisites. Particular attention should be paid to the statement of purpose, since it could affect the association's tax-exempt status and potentially give rise to antitrust liability or defenses. For example, the purposes of an association need to reflect whether it is organized for exempt purposes under Section 501(c)(6) or some other section of the Internal Revenue Code.

Articles typically include other basic provisions: the association's name; the name and address of its legal agent; the names of its incorporators; the anticipated duration of the association (whether perpetual or for a specific period); general provisions of association governance; a description of the constituency represented by the association; general membership requirements; the geographic area(s) in which the association will operate; and whether there will be bylaws. Before deciding on the final list of bylaws, first carefully review the applicable state law to ensure that any required provisions are included.

Once the articles are filed and approved by the state, the state retains a copy of the file and returns an official copy of the articles to the association. For tax purposes and other reasons, associations must carefully maintain incorporation documents and any amendments.

Bylaws

Bylaws provide the central governance provisions for the association. Because courts will generally honor and enforce bylaws as an agreement between the association and its members, it is advisable to make them as concise and clear as possible.

Generally describing the relationships, the rights, and the obligations for association members, directors, officers, and staff, bylaws are also key to obtaining tax-exempt status by demonstrating the guidelines under which the association operates. In addition, they may also set forth membership qualifications, member classes (if any), admission procedures, dues requirements, member expulsion and disciplinary provisions, and officer and director qualifications, duties, terms, and powers.

Associations must establish clear voting procedures for members and directors, including notice and quorum requirements, proxy and mail voting options, and meeting requirements. Explicit indemnification by the association of its officers, directors, other volunteers, and staff may also be stated within the bylaws - as might be the details of an antitrust policy, particularly for trade and professional associations. A separate provision is recommended for establishing the procedure, including voting and quorum requirements, for amending the bylaws.

Beyond these basic provisions, more specific guidelines can be included depending on the nature of the association and its activities.

Policy manual

Whereas an association's articles and bylaws can often benefit from some brevity and generality, the policy manual is the proper place for detailed explanations of bylaws provisions, such as voting, member discipline, personnel sexual harassment policies, staff responsibilities, and committee roles. Typically the policy manual is drafted and adopted under the authority of the association's board of directors, making it more readily amended as the need arises. A policy manual is especially useful for large or complex associations with many classes of membership, an extensive committee structure, or a large staff. In any event, the association's articles and bylaws guide the contents of an inclusive manual, which then serves as an everyday resource for staff and members involved in the association's operations and governance.

Articles of incorporation, bylaws, and the policy manual form the essential framework and day-to-day guidance for the association. Ideally these governing documents form an integrated whole, each document complementing the other, avoiding inconsistency, and together ensuring the association's smooth administration.

Thomas E. Arend is an attorney in Jenner & Block's Washington, D.C., office and a member of the firm's Association Practice Group. Jerald A. Jacobs is a partner in Jenner & Block's Washington, D.C., office and edits this column.