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Does Founder have rights after termination?

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Does Founder have rights after termination?

I founded a nonprofit humane corporation 4 years ago and was the sole founder and operator until a year ago. I had a board of directors consisting of 5 members. The board recently voted 3 - 2 to terminate me as executive director. I was not given a hearing and was told after a special meeting that I was terminated because I did not possess the skills that the board expected. My termination was really due to a personality conflict between me and one of the board members who got two of the other board members to vote her way and remove me. Do I have any rights to the organization as founder and the fact that I wasn't given a hearing to defend myself?

This is why we recommend that founders who expect to provide many years, or even a career, developing a nonprofit organization protect their personal interest in creating the structure of the organization.  We regularly recommend that the founder create a membership corporation and serve as the sole member (with powers analogous to a sole shareholder of a business).  We set it up so that they have the right to appoint members of the board (including themselves), remove members of the board, and control amendments to the articles of incorporation and bylaws.  If that were the case here, even if the board actually removed you as executive director, you could remove and replace those who did so with people who would rehire you to your old position.  You can’t do that kind of thing very often or you will have a really difficult time finding people willing to serve.  But those who know that they can’t take over the organization and are there to give you their best advice on how to realize your dream are better to work with than those who think they can take advantage of everything you have done as a start-up, get rid of you, and make it theirs.

Since I assume that you are not a voting member of your organization, you most likely do not have any special rights as founder.  Since you are not a director, you probably don’t even have a right to notice of the meeting, although the bylaws may provide specific notice rights or tenure for the executive director as an officer.  Whether they can remove you without a hearing depends on your state law and your bylaws, but normally a board can remove an officer or other agent at any time without a hearing and for no reason other than they think it is in the best interests of the organization.  You can always appeal to the conscience of those who voted against you, but I doubt that you have any legal rights to overturn the decision.  (See Ready Reference Pages:  “The Key Question – Whose Organization Is It?” and “Bylaws Function as Constitution of Nonprofit Corporations” and "Sole Member Bylaws Can Protect Founder of Nonprofit")

Tuesday, June 22, 2010

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Comments

Could you structure your non-profit like that and still be a 501c3? It doesn't seem like you could. -- K.K. via e-mail

Yes.  The IRS is sometimes more questioning on an application, but there is nothing that requires denial of recognition of a sole member organization. -- Don Kramer

Thank you for this info, I really tuned into this question because I am poised to start a non-profit in which I have selected a board from well-known associates and colleagues, and I will be the executive director  and I am the founder.  I am concerned about this very issue and have tried to craft bylaws to address this kind of issue, if needed. I don't totally understand your response in creating a member non-profit  in which I as the exec director would be the only member?  I'm not following, but again I'm new at this.   Can you explain how an exec director can decrease the risk of being ousted without a fair review? --D.B. via e-mail

The Ready Reference Pages referred to in the answer to the question attempt to explain the difference between a nonprofit corporation with members and a nonprofit with only a board of directors who select their own successors.  The form of bylaws in the Ready Reference Page includes some of the specific provisions that we think can be used to protect the sole member (founder, incorporator, visionary) in providing ultimate control of the organization to that person. 

As we have said before, however, we do not recommend that bylaws be drafted and adopted without the review and assistance of an attorney who is experienced in these matters.  Getting professional help at the outset is a good idea to avoid having inexperienced amateurs drafting the Constitution of the organization.  You can't pull bylaws off the shelf and expect them to work in every situation, particularly when you are trying to protect a sole member. --Don Kramer

Can you change the bylaws from an organization with membership to sole
membership to protect the founder so he can not be removed by other board members? --A.H. via e-mail

You can change the structure, but it may require getting the other members to resign, or getting a majority to approve a change in the governing instruments.  How you would proceed would depend in part on the state law governing such changes. --Don Kramer

Good information

I know this is an old thread but I'm currently forming a not for profit and want to ensure that my position as Executive Director is secure as I'll be doing this as a career for quite some time. Can you point me in the right direction to information regarding developing the bylaws so this type of thing doesn't eventually happen to me? Thank you. Jason M

Thanks for submitting this question, we get it often.  We’ve written extensively on sole member bylaws. Our article – “Sole Member Bylaws Can Protect Founder of Nonprofit”  addresses this issue specifically. You’ll have to start a subscription to read the full text, but I think it’s worth the $10.95 monthly subscription rate.

I believe there might be some information in our “Your Legal Questions Answered” section as well, all that info is free. --Lisa Chatburn, Managing Editor

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