Charitable nonprofits are organized and operated to further their tax-exempt missions. For some nonprofits, their mission statement is memorialized in their articles of incorporation and/or bylaws. For others, the mission statement can only be found on their public communications (e.g., website), fundraising materials, and annual information returns (Forms 990). In either case, organizational leaders may consider incorporating key values into their mission statements to more firmly anchor those values as legal requirements.
Articles of Incorporation
The articles of incorporation (Articles) of a nonprofit corporation exempt under Section 501(c)(3) of the Internal Revenue Code must include a purpose statement that limits the nonprofit’s purposes to exempt purposes in section 501(c)(3). A specific purpose statement might be drafted very broadly to provide for future flexibility. This is often recommended by attorneys to mitigate the risk of operating outside of the specific purpose statement. So, it’s not uncommon to see Articles simply provide that the specific purpose of the nonprofit is charitable and educational within the meaning of 501(c)(3).
While greater specificity would create more restrictions on the nonprofit’s activities, it would also create a stronger mission anchor to guide the organization’s leaders. A specific purpose like “to provide after-school educational services to children ages 6-12 living in Venice, California” would signal that the nonprofit’s efforts need to be focused on that specific purpose and would not allow the nonprofit to expand its services to younger or older children or children outside of Venice unless it amended its Articles.
Similarly, adding equity goals to the specific purpose statement would create a stronger equity anchor. For example, the specific purpose above could be revised to state: “to provide after-school educational services to children ages 6-12 living in Venice, California, which must include education on matters of racial equity using tools and instructors from BIPOC educators.” Such statement would require the organization’s leaders to also design programs, approve budgets, and make decisions that are consistent with the equity statement embedded in the nonprofit’s specific purpose statement.
Amending the Articles requires approval of the Board (and possibly the members, if there is a voting membership structure) and filing the amendment with the appropriate state agency (e.g., Secretary of State). This can generally be done anytime, but the assets acquired prior to the change in the specific purpose statement must continue to be used for that specific purpose and not the new purpose, to the extent that the new purpose expands on or diverges from the original purpose.
Instead of including an equity anchor in the Articles’ specific purpose statement, it can be included in a specific purpose provision in the Bylaws. If properly worded, this should not diminish the legal requirement that the organization’s leaders comply with the specific purpose. However, the Bylaws are more easily amended because an amendment does not require a filing with a state agency in order to become effective. This may balance the desire for an equity anchor with some degree of flexibility to be able to adapt the specific purpose statement and equity elements as circumstances change.
A specific purpose statement may also take the form of a mission statement in other communications by the nonprofit, including its Form 990, the annual information return with the IRS. Generally, such expression of the purpose statement will not create the same strength of restrictions as when the purpose statement is in the Articles or Bylaws. Accordingly, it’s unlikely a regulator will enforce a restriction on use of assets based solely on how the specific purpose statement is worded outside of the Articles and Bylaws except when a solicitation reasonably misled donors as to how their contributions would be used. Nevertheless, any public expressions of the purpose statement including the equity elements may create some inner accountability mechanisms to assure that the organization’s leaders are governing and managing the nonprofit in accordance with such expressions.
For many nonprofits whose leaders believe racial equity and other forms of equity are core values that are intertwined with their mission, embedding equity goals in the specific purpose statement deserves strong consideration. The strongest equity anchor will be expressed in the Articles or Bylaws. But even including equity elements as integral elements of the mission statement in other public communications can help keep the organization’s leaders on track and accountable.