Should Your NPO Have “Statutory” Members?

Most states, including California and Arizona, do not require a nonprofit to have members. They do, however, typically permit the NPO to create a special category of so-called “Statutory Members”, who are individuals or entities given legally recognized membership rights under state law. These rights must be created in the Articles or the Bylaws of the Corporation.

These statutory members typically receive legally enforceable voting rights on Directors and important corporate issues, such as mergers, dissolutions, and amendments to the Articles of Incorporation. State nonprofit laws usually require that if a nonprofit has voting Statutory Members, it must (a) honor their rights, (b) maintain accurate membership records, (c) follow the law on admitting or terminating memberships, and (d) provide notice of membership meetings such that members have an opportunity to be heard and vote on matters within their purview.

Members in Arizona
Arizona requires that the Articles of a NPO expressly state “whether or not the corporation will have members” (ARS 10-3202) The Articles or the Bylaws may then specify the rights of those members, who must consent to membership status. (ARS 10- 3601) There may be “classes of membership” with varying rights and duties as specified in the Articles or Bylaws. The meetings, rights, and duties of members is discussed n detail at ARS 10-3601 through 10-3732.

Members in California
In California, the Articles may provide for members or may be silent. If both the Articles and the Bylaws are silent on members, then the entity has none. (Corp Code § 5310) A Statutory “Member” must be give the power to vote for Directors and on important corporate decision. (Corp Code § 5056) The Code also recognizes categories of members who may lack voting rights. (Cal Corp § 5330) Similarly,

Why Bother?
An entity should NOT have statutory voting members unless and until its size and donation model make the significant costs, hassles, and delays worthwhile. It is usually a gambit used by organizations which are already growing with a meaningful community outreach, to encourage donations and community support. A non-voting group of supporters of members can be encouraged, however, who may feel like they belong in some special way and donate accordingly. It must be clear and in writing that such a title does not grant such members any voting rights.