Should your non-profit have members?
Members significantly increase a non-profit corporation’s operation and recordkeeping burden, and members also restrict the actions that non-profit corporations (“NPC”) can take without a vote of approval by the membership. However, memberships are also an excellent way to bring in steady revenues and spread knowledge about and participation with your NPC. In short, you should carefully consider the benefits and burdens of offering memberships.
Burdens of Membership
Memberships impose additional burdens on NPCs in two ways: (1) California law restricts the actions an NPC can take relating to membership benefits without approval by the membership and (2) the additional burdens NPCs place on themselves to attract memberships.
California Law Restrictions
A “member” is any person who is allowed to vote for the election of one or more directors, dispose of the NPCs assets, or the disposition of corporate assets, or a dissolution or merger, or changes to the NPC’s bylaws or articles of incorporation. Therefore, if your NPC authorizes people to pay an annual or monthly membership that entitles them to vote on any of these items, your NPC will have “members.”
Corporations may not undertake any of those four actions without membership approval. Furthermore, NPCs with memberships may not amend the bylaws or articles that affect membership rights without consent by a membership vote. If the Board takes these actions without prior authorization by the membership, the Board and the organization could be subject to a lawsuit.
Further, NPCs also impose their own restrictions to attract members. For example, a corporation might agree to cede even more authority to its members to encourage participation and growth. However, those additional benefits are further restrictions on the NPC.
Finally, members also impose significant recordkeeping burdens on the corporation. The corporation must issue its members voting ballots and invitations to the member meeting. The ballots must have adequate information on them for the members to understand their votes. The NPC must organize an annual meeting for members to participate in and vote.
The corporation must also track everyone who is an active member. If membership is based on monthly contributions, then membership rolls must be updated monthly. Once your NPC has hundreds or thousands of members, keeping the rolls updated is a job unto itself.
Benefits of Membership
With all of these burdens, you may be thinking – what benefits? There are some. Memberships encourage people to engage with your organization and participate in its program. Non-profit corporations are only as successful as the people who engage with them. Therefore, any program that encourages more people to join and devote their time and money is worthwhile to consider. Another ancillary benefit to increased engagement is awareness. Membership is another way to grow public awareness of your organization and its mission.
Memberships also provide a reliable base from which to recruit directors and officers. Many NPCs live and die with their founders. However, if you want your organization to exist past your term, then recruiting and training new leaders is crucial. Memberships are natural vehicles to bring in new people and to educate and elevate them to leadership positions.
These benefits may be worthwhile for your organization. However, it is a significant decision to make. Take your time. Think about your organization, its needs, growth potential, and consider if bringing in more people is suitable for your organization.