Governing Documents: Separating Constitution, Bylaws, Policies, and Rule

Published March 24, 2016

Recently, organizations in Ontario and BC have been asking us about transitioning to compliance with the upcoming Ontario Not-For-Profit Corporations Act (ONCA) and the new BC Societies Act. For many organizations (especially local clubs) this is the first time in many years that their governing documents have come under such scrutiny.

In this blogpost, we will review the differences between ‘constitution’, ‘bylaws’, ‘policies’, and ‘rules’. Every organization undergoing a bylaws or policy review – or transitioning to compliance with new incorporation legislation – should know these differences.

Separating content among these governing documents is one of the most difficult challenges for a local sport organization. Most local associations publish a single large document that combines legal requirements, policies, and local rules variations. But these should all be separate.

CONSTITUTION

We are frequently asked about the difference between an organization’s ‘constitution’ and their ‘bylaws’. Although the terms are often used interchangeably, they refer to quite different things. The truth is, for most organizations, a constitution has a very limited purpose – if it is even required at all. The term ‘constitution’ is not even included in federal and most provincial legislation.

An organization has legal purposes or objects that are filed with the government. In BC and the Northwest Territories, some of the legal pieces are contained in a ‘constitution’. In every other province and territory, and federally, all the legal pieces are contained in ‘Articles’ or a ‘Letters Patent’ or another similarly-named document. Importantly, unless your organization is incorporated in BC or the Northwest Territories – you should not have a constitution at all.

The legal pieces typically required to be kept by the government usually include: the formal name of the corporation, the minimum and maximum number of Directors, the full name and home address of Directors and Officers, the high level legal purposes of the organization, and sometimes other items like dissolution requirements. Also, whatever is placed in these legal documents should not be repeated in the organization’s bylaws.

BYLAWS

The bylaws serve to regulate the affairs of the organization. The bylaws should be lean and only contain sections relevant to the legal operation of the organization. So, the colours of your team uniforms should not be enshrined in the bylaws – and neither should your mission statement.

To amend a bylaw, the Directors may vote for a change at a meeting of the Board or a Member might propose an amendment at a meeting of the Members. Regardless of whether a bylaws amendment is approved by the Board or proposed at the meeting of the Members, the amendment must be ratified by the Members at a meeting of the Members in order to have lasting effect.

Here are some typical sections usually included in Bylaws:

• Definitions – definitions of the main terms used throughout the bylaws
• Membership – categories of members, member admission and renewal, dues, termination and suspension of membership, how good standing is maintained
• Meetings of Members - annual and special meetings, calling a meeting, notice, new business, quorum, voting and proxies
• Governance – number of Directors, eligibility of Directors, powers of Directors and members, discipline of members, election and appointment of directors, removal of directors, board vacancy, meetings of the Board
• Officers – number of Officers, how Officer positions are filled, duties of Officer positions, removal and vacancy
• Committees – appointment of committees, size and requirements, committee restrictions
• Finance and Management - fiscal year, appointment and role of the auditor, maintaining books and records, which individuals have signing authority, borrowing and borrowing restrictions, conflict of interest, Director remuneration
• Amendments and Fundamental Changes – how bylaws are amended, types of amendments that are considered ‘fundamental changes’ (if any) under the incorporation legislation
• Notice – required period of notice, errors
• Dissolution – what happens when the organization is dissolved
• Indemnification – absolving Directors, insurance
• Adoption – when the bylaws were adopted

POLICIES

An organization’s policies are typically determined and approved by the Board of Directors. The Members have little input on the creation or application of a policy. The Board may delegate the responsibility of creating policies to Committees of the Board and this is one way that Members can have influence on the content of policies. Also, although we strongly advise against it, some organizations may decide that Members should be permitted to ratify policies (similar to how Members ratify bylaws amendments).

An organization’s policies should connect to the organization’s mission, vision, and values. If an organization values ‘integrity’ the content of the policies should reflect this value in action. The Board can develop policies and procedures to operate the organization and manage members. Typically, policies may be consolidated into a policy manual or may exist as stand-alone documents. We have written about an organization’s usual policy requirements in our blogpost titled What policies does my sport organization need?

RULES

The Board may create rules for the operation of leagues, teams, events, equipment, or activities. Modifications of the rules of the sport may also be listed. For example, the local organization will want to specify how its rules may be different than the rules of the provincial sport organization.

Similar to policies, this material also does not need to be approved by the Members and it should exist separately from the policies and procedures. Just as with policies, committees can also have input on the creation and implementation of rules – but the final decision usually rests with the Board. However, in some instances organizations may choose to permit Members to approve rules changes similar to how Members ratify bylaws amendments.

MEMBER POWERS

In this blogpost, we’ve referenced the powers that Members have over each of the four groupings of the organization’s governing documents. To summarize:

• Constitution/Articles/Letters Patent: Board or Members propose changes - Members must approve (usually by Special Resolution)
• Bylaws: Board or Members propose amendments - Members must ratify (usually by Special Resolution but sometimes by Ordinary Resolution)
• Policies: Board proposes and approves (Members can be given the power to approve)
• Rules: Board proposes and approves (Members can be given the power to propose and/or approve)

For most organizations, we recommend that the Board retain the power to propose and approve both policies and rules – with advisory Committees listening to proposals from the Members. We also recommend that the organization clarify which body has which power. Typically an organization will include the following statement in its bylaws:

In accordance with applicable incorporation legislation and with these Bylaws, the Board is empowered to make policies and procedures to manage the affairs of the organization, to discipline Members, and to manage and handle disputes within the organization

In the bylaws, an organization may also choose to state clearly whether Members must approve policies, and whether Members may propose and/or approve rules changes.

We hope that separating your governing documents into the four pillars as described above does not seem too daunting. It’s a useful practice to clean up your documentation and clarify who has power over what pieces – and it should be a necessary exercise for organizations transitioning to compliance with new not-for-profit legislation. We can certainly help you get started!

KRL@sportlaw.ca
SJI@sportlaw.ca
RMC@sportlaw.ca