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There are many types of member-based organizations. These include trade and industry associations, community associations, lobbying groups, as well as non-profit social and athletic clubs. While they have many differences, common to each of these entities is a broad membership and a focus on activities that benefit these members or represent their interests or those of their profession or industry.
Below is a basic checklist of legal requirements and best practices that are appropriate in order to ensure good governance and reduce risk when managing a large membership. Many of these issues apply to all organizations regardless of the size and composition of their membership, but they are particularly important for boards and management that have to manage a large group of members that extends beyond the directors of the organization or a single founder. While these issues are by no means exhaustive, they represent a basic checklist that can help organizations avoid common governance problems that can arise.
Know Your Corporate Documents
It is essential that the board and management of an organization are familiar with the organization’s governing documents as they pertain to membership. The constating documents of an incorporated non-profit organization consist principally of the articles of incorporation or letters patent, and the bylaws. These documents set out the membership structure of the corporation, as well as the eligibility criteria for membership.
It is not uncommon over time for organizations to adopt practices and policies with regard to their membership that are out-of-step with the formal provisions in their governing documents. This can include dividing members into classes or categories in a way that the governing documents do not permit, admitting members based on criteria that are not reflected in the formal documents, or failing to follow the application and admissions process that is set out in the bylaws. This can create risk that the individuals and/or entities that are being treated as members are not, in fact, properly admitted or eligible for membership. Among other things, this opens the organization up to a challenge that actions purportedly approved by the membership may not have been properly authorized.
Boards and management should review their constating documents to ensure that their membership structure and practices are consistent. If inconsistencies are uncovered, there are various ways to address this, potentially by updating the constating documents and ratifying past actions or membership admissions. Addressing this issue proactively is important, as it is much easier to address in times of calm rather than after a specific dispute or problem has arisen.
Keep Track of Your Members
It is critical that organizations keep careful records regarding the identity of their members. In order to function effectively, an organization must know who its members are at any given time. The organization should know the date on which each of its members joined the organization, and the date on which each former member left. For organizations with multiple classes of membership, it is important to track when members enter and exit each class of membership. Where an organization permits members that are corporations or other legal entities, it is also important to keep records of who is authorized to represent the corporate member.
In our experience, it is not uncommon to find that organizations do not have sufficient records to track their members with confidence. This creates significant challenges on many basic matters of corporate governance. In order to ensure that the Board of the organization has been properly elected, its auditors properly appointed, and to enable any fundamental corporate changes to be made (e.g., amendments to the articles or bylaws), the organization must know who its members are so as to comply with the formalities of holding meetings and ensuring that all members entitled to vote have received notice. Depending on the statute of incorporation, the organization may also be legally obligated to be able to provide a current register of members to members or creditors of the organization.
Organizations should review their membership rolls to ensure they are current. If there are deficiencies, it may be necessary to pass resolutions confirming the current membership and ratifying past actions.
Know Your Meeting Procedures
The basic forum in which members exercise their corporate rights is through meetings. While the details vary depending on the applicable statute of incorporation, the board is required to hold an annual meeting each year to address basic matters of corporate governance. Special meetings may be called to address matters requiring membership votes outside the annual meeting. Members also generally have rights to requisition meetings in certain circumstances.
It is important that boards and management understand the procedural rules and requirements that govern meetings of members. This includes an understanding of when meetings can be called and by whom, the applicable notice requirements, as well as the procedures that apply at the meeting itself. While not every procedural question or issue can be anticipated in advance, the board should be reasonably prepared to deal with potential questions or motions from the floor that may arise during a meeting. This will ensure that meetings run as smoothly as possible, and will avoid procedural errors that can call into question the validity of actions taken or approved at a members’ meeting.
Review Membership Policies, Terms and Conditions
Many organizations adopt membership policies or terms and conditions that go beyond the basic membership provisions in the organization’s governing documents. Membership policies may include details regarding the process by which members apply for, renew and cancel membership, details regarding membership fee obligations, as well as additional member obligations and rules that may be relevant. Depending on the nature of the organization, membership policies may include policies around the use of facilities, guest policies, codes of conduct, and discipline policies (more on this below).
Organizations are well advised to periodically review their membership policies and any terms and conditions. It is important to ensure that these are current and address new issues that arise. For example, with the legalization of recreational cannabis in October 2018, many organizations, and in particular many private clubs, updated their membership policies to deal with cannabis use on the organization’s premises. It is also important to ensure that the organization’s policies or terms and conditions are consistent with the organization’s governing documents.
Review Member Discipline Policies
It is important that organizations have clear policies with respect to member discipline. There should be processes in place to address misconduct by members, including the imposition of sanctions such as suspension or expulsion.
The basic authority to discipline members is typically found in an organization’s bylaws. These provisions typically authorize the board to suspend or terminate membership upon a finding of misconduct. In some cases, the governing documents will provide that the full membership must approve disciplinary action, but it is more common for this power to be reserved for the board. We typically recommend that the board be authorized to administer member discipline as part of its fiduciary obligation in running the organization.
Beyond the provisions in the bylaws, and depending on the frequency with which member discipline issues arise in practice, it is often advisable to have policies setting out the specific process that will be followed in the event of an allegation of misconduct against a member or the need to impose discipline. Clear guidance in policies and procedures helps to guide the board and management in investigating complaints or allegations of misconduct, reviewing the findings, engaging with the member in question to allow him or her to respond to the allegations, and in exercising discretion to impose sanctions. It promotes consistency in decision making and better ensures fairness to members. The last point is important. Members are owed certain basic measures of procedural fairness when they are subject to disciplinary action. The specific obligations of procedural fairness that apply will vary depending on the context, but these obligations generally require that members receive reasonable notice of the case against them, have an opportunity to respond, and that the final disciplinary decision is made by an unbiased decision maker. Specific policies and procedures around member discipline can help organizations in ensuring that this duty is met. While courts have generally expressed reluctance to second guess the discipline of members of non-profits, they may step in where the discipline procedures do not follow the principles of procedural fairness and natural justice.
As noted, this is not an exhaustive list of the issues that can arise in large membership organizations. It does, however, set out issues that every board should be satisfied have been addressed adequately. We regularly advise clients on these issues and would be pleased to assist membership organizations in ensuring that they are meeting their legal obligations and adhering to best practices.