Eliminating Statutory Membership

Introduction

Nonprofit organizations governed by the Washington Revised Code (RCW) 24.03A, often grapple with the concept of membership as well as the members’  rights and responsibilities of members. While members play a crucial role in the governance of these organizations, there are situations where nonprofits may consider eliminating statutory membership. This blog will address why nonprofits may remove membership under RCW 24.03A, the advantages and disadvantages of removing with members, and the steps to transform a nonprofit with members to one without members. 

What is Membership and What Are Their Rights

Before delving into the process of eliminating statutory membership, it’s essential to understand what membership entails and the rights members possess. In the context of nonprofit corporations governed by RCW 24.03A, membership refers to individuals or entities who have a formal relationship with the organization and hold any of the rights under RCW 24.03A.010(45) – Specifically, the right to elect directors or vote on fundamental transactions. Check out Apex’s blog on little ‘m’ versus big ‘M’ Members for more information on the distinction between statutory and nonstatutory members.  Of note this blog is concerned with statutory members, also called big “M” Members (“Members”). 

The key to understand is that even though a nonprofit may refer to a body of individuals as ”members”, they may not be statutory members. The opposite is also true. A nonprofit may not believe it has Members, but might.  

The Benefits and Drawbacks of Getting Rid of Members

Once a nonprofit determines whether or not it has Members, the next step is evaluating whether it is beneficial to remove the membership. This is not a decision to take lightly. 

      Benefits:

Streamlined Decision-Making: The most significant advantage of eliminating statutory membership is streamlined decision-making. Without Members, a board of directors (“Board”) possesses more autonomy to make important decisions, and the ability to make those decisions quickly. Those in charge of Member organizations are all to familiar with the difficulty of corralling individuals for quorum or voting.  

Reduced Administrative Burden: Similarly, managing a membership base can be administratively intensive. By removing Members, a nonprofit can reduce the paperwork, time, and resources used to comply with notice laws and managing membership lists. Overall, removing membership can reduce administrative costs. 

      Drawbacks:

Loss of Community Engagement: Members can be the lifeblood of a nonprofit, bringing valuable insights, support, and a sense of community. Removing Members may result in a loss of engagement and grassroots support. Often times, Members are the first place to go for fundraising initiatives or volunteer support. Losing that built in support may undermine the health of the nonprofit.  

Risk of Concentrated Power: Without Members, the Board may become more powerful, potentially leading to a lack of checks and balances within the nonprofit corporation. Nonprofits are built around the idea of benefitting the wider community. Members, in a limited way, are the voice of the community. Removing membership means the organization loses that check on the Board decision making authority. 

How to Get Rid of Members

Eliminating statutory membership under RCW 24.03A is a significant step that requires careful planning and adherence to legal procedures.  

  1. Review and Amend Organizing Documents: First, a nonprofit must review and amend the nonprofit’s articles of incorporation and bylaws. Articles of Incorporation are legal documents that record the creation of the nonprofit corporation and describe the control of the nonprofit corporationThese must be filed with the Secretary of State Bylaws provide more detailed information on the functions of the organization and may define membership and the Members’ rights. Therefore, it is likely that both documents will require significant edits to remove Members rights and the processes built around those rights. A nonprofit will likely need to amend the articles of incorporation and bylaws not only to remove provisions creating membership, but also to redefine the governance structure. For instance, is the Board now self-perpetuating? Is the nonprofit going to involve more community guidance in place of membership to maintain community involvement 
  2. Board Approval: Next, the nonprofit must obtain approval from its Board for the proposed amendments to the articles of incorporation and bylaw. When obtaining Board approval, it is important to ensure that the process aligns with the existing procedures for amending the articles of incorporation and bylaws. This can be documented via board meeting or unanimous written consent. Ultimately, the Board wants to prepare and advance to the Members all changes to the articles of incorporation and bylaws, including the removal of members from the nonprofit corporation. 
  3. Member Approval: Remember, until the Members approve changes to the articles of incorporation and bylaws, a nonprofit operates under its existing operating instruments. Likely, if a nonprofit has Members, your bylaws or articles of incorporation mandate Member approval for changes that affect governing documents. If they are silent on this, best practice dictates that any changes that affect membership must be approved by the Members.  
  4. File Required Documents: Finally, the nonprofit must file the amended articles of incorporation with the Washington Secretary of State’s office to formalize the change. RCW 24.03A now requires a nonprofit corporation to state in its articles of incorporation whether there are Members.  

 

Conclusion:

Eliminating statutory membership under RCW 24.03A is a strategic decision that should be made with careful consideration of the benefits and drawbacks. While it can simplify governance and reduce administrative burdens, it also carries the risk of diminishing community engagement and a lack of checks on the power of the Board. If a nonprofit decides to pursue this path, ensure that it follows the legal procedures diligently, including amending the articles of incorporation and bylaws as well as obtaining necessary approvals and filing the requisite documents with the Secretary of State’s office. Always consult with legal counsel or seek professional advice when making such significant changes to your nonprofit’s structure, as compliance with federal and state laws and adherence to the organizations governing documents are critical.  

This blog is for general information purposes only and should not be relied upon as specific legal advice. This article, or contacting Apex, does not in any way form an attorney-client relationship. If you have any questions or would like to learn more, please contact us or visit our blog. You might also like to read, Nonprofit Dissolution or Nonprofit Member Inspection.

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