Nonprofit ‘members’ in NH: what statutory membership really means

When a public charity is formed, the focus is often on the organization’s purpose, the application for 501(c)(3) tax-exempt status and board structure.

Another decision is just as important: whether the corporation will have statutory members. In a nonprofit with a self-perpetuating board, directors generally make major decisions. In a nonprofit with members, members may have governance rights as provided in the governing documents, the articles of agreement and bylaws. Because membership can be hard to administer and difficult to unwind once established, the decision should be made deliberately prior to forming the nonprofit.

Under New Hampshire law, a voluntary corporation or nonprofit may have one or more classes of members or may have no members. In the absence of a provision in its articles of agreement or bylaws providing for members, the corporation has no members. Where members do exist, they have no voting rights except as specifically provided in the articles of agreement or bylaws. There is a big difference between a “member” in the everyday sense and a statutory member of a nonprofit, in the legal sense. A statutory member is not the same as a donor, supporter, dues payer or someone with a “membership card,” unless the articles of agreement or bylaws grant those individuals legal membership rights.

Use care when using the word “member” in fundraising materials, welcome emails and program descriptions. If people are described as “members” but the governing documents do not clearly state whether they have governance rights (or clearly disclaim voting and governance rights), a dispute could arise over whether they are statutory members entitled to vote. If a nonprofit does choose statutory members, the articles of agreement should include criteria and procedures for membership and participation, and the organization should have a clear plan for eligibility, voting mechanics and handling inactive members over time.

Members can also override the board under certain circumstances. In New Hampshire, the power to alter, amend or repeal bylaws or adopt new bylaws is generally vested in the board of directors unless reserved to the members by the articles of agreement, and board-adopted bylaws are subject to repeal or change by a two-thirds vote of the holders of membership certificates. An organized group of members can undo governance changes the board views as necessary. This does not mean electing to have members is a poor choice, but it does mean that the organization must be designed for member participation.

Dissolving the nonprofit can be harder when there are members. Under New Hampshire law, dissolution generally requires that two-thirds of the membership vote to dissolve. A statement must then be filed with the Office of the New Hampshire Secretary of State, signed under the penalties of perjury by the treasurer and a majority of the directors or trustees, setting forth the vote and the plan for distributing assets and satisfying obligations. If the membership list is large or inactive, getting the required vote can be difficult even when dissolution is appropriate. The alternative, judicial dissolution, adds court involvement and, for public charities, notice to and involvement by the attorney general.

Membership rights usually cannot be transferred or inherited. When a member dies, resigns or is removed, membership ends. Departures can affect quorum and voting thresholds, and a drop in active members can make required actions harder. This increases compliance work if the organization has not consistently tracked member addresses, resignations or eligibility.

Many nonprofits are better off without statutory members. Operating without members can reduce uncertainty about who gets a vote and the administrative work of tracking membership over time. Member voting can make routine governance more challenging. When major approvals require a member vote, the organization must maintain an up-to-date member list, give proper notice of member meetings and confirm quorum. These steps can be manageable for a nonprofit with an active, engaged membership but burdensome when members are primarily supporters who do not expect to participate in governance.

A few simple choices at the outset can prevent major governance headaches later. Default to no statutory members unless there is a clear reason to have members. If supporters are described as “members,” the governing documents should clearly disclaim voting and governance rights. Keep dissolution in mind from day one, because a large, inactive membership base can make it much harder to wind down the organization.

Under New Hampshire law, statutory membership is easy to create and hard to undo. Once statutory members exist, their rights are driven by provisions of the articles of agreement and bylaws, and the process to change or eliminate those rights can be difficult once a membership structure is in place. To avoid surprises, decide up front whether the corporation will have members at all. If it will, define membership criteria, participation procedures and voting mechanics clearly in the governing documents and revisit them before major decisions and governance changes are made.

Gena Lavallee is a director in McLane Middleton’s Corporate Department, and can be reached at gena.lavallee@mclane.com.