Q&A #97 – What to do when the Bylaws are ambiguous?
Question: My nonprofit organization has been dealing with a confusing Bylaws question regarding eligibility to serve on the Board of Directors. We have sought legal counsel on the issue and were told the Bylaws are ambiguous and that there are multiple interpretations that would be reasonable. What is the best way to proceed in this situation?
Answer: It is nearly impossible to eliminate all ambiguity from the Bylaws of a nonprofit organization, so sometimes interpretive questions will arise that truly do not have a clear answer. Fortunately, courts will often defer to the Board’s interpretation of ambiguous Bylaws if the Board can show that the interpretation was reasonable and made in good faith. While the level of deference will vary depending on the applicable jurisdiction, this is a good standard to aim for regardless.
First, you have taken the right first step by seeking legal counsel. In the event this Bylaws issue ever resulted in a dispute that led to litigation, seeking advice from an attorney with expertise in this field is helpful to show the court that the Board exercised due diligence and made a good faith attempt to reasonably interpret the Bylaws provision at issue.
When evaluating possible interpretations, make sure to consider the organization’s past practices and any prior interpretations of this or similar issues. Interpreting the Bylaws in a manner that is consistent with past practices is an important factor to demonstrate that the interpretation is reasonable and not arbitrary.
Lastly, in matters involving ambiguous Bylaws provisions, it is important to document the interpretation the Board decides upon. If the matter is sufficiently important, it should be the subject of a Board vote. The meeting minutes should reflect that the Board identified the issue, exercised due diligence process to research and review the issue (and, if necessary, consulted legal counsel), and ultimately held a vote on the proposed interpretation. Include a short description of the Board’s reasoning for the interpretation, such whether this interpretation was recommended by legal counsel and/or would be consistent with the organization’s past practices.
Planning Tip – Keep a running list of interpretive questions that arise related to your organization’s Bylaws, as these questions will be a good guide to Bylaws amendments that may be needed. Consider the organization’s future plans, and keep in mind that ambiguities can arise for a variety of reasons besides poor drafting. For example, the organization may be thinking about implementing new projects, activities, or governance models that did not exist in the past and are not adequately addressed in the current Bylaws. When you find a significant Bylaws provision that is ambiguous, it is advisable to amend the Bylaws to be more clear if and when the question arises in the future.
In general, the Board’s interpretation of an ambiguous Bylaws provision will rarely be overturned by a court if you follow these important steps to show that the interpretation was reasonable and made in good faith.
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