Nonprofit Membership Organizations

Hawai`i Revised Statutes (HRS) Chapter 414D, the Hawai`i Nonprofit Corporation Act, defines member as meaning “(without regard to what a person is called in the articles or bylaws) any person or persons having the rights and obligations of membership pursuant to a corporation's articles of incorporation or bylaws.” HRS § 414D-14. HRS § 414D-83 provides that a nonprofit corporation is not required to have members. HRS § 414D-101 provides that a “corporation with members shall hold a membership meeting annually at a time stated in or fixed in accordance with the bylaws” and “may hold regular membership meetings at the times stated in or fixed in accordance with the bylaws.” HRS § 414D-109 requires that a corporation maintain an alphabetical list of the name and address of each members entitled to notice and to vote at a meeting. HRS § 414D-110 provides that the “right of the members, or any class or classes of members, to vote may be limited, enlarged, or denied to the extent specified in the articles of incorporation.” HRS § 414D-114 pertains to members’ voting for directors, noting that the articles or bylaws may provide for cumulative voting in certain cases. HRS § 414D-115 provides that a corporation may provide in its articles or bylaws for the election of directors by members by any reasonable method.

One basis for deciding whether or not to have members is the difficulty that is part of having an annual membership meeting - is the value of the membership greater than the difficulty of meeting? There is a strongly implied assumption that members may be entitled to vote on certain matters, such as the election of directors and amendments of the bylaws or articles of incorporation. If a corporation has no members or its members have no right to vote, the directors have those powers.

The implication that members elect the Board of Directors is perhaps the strongest distinction between membership and non-membership organizations. In a non-membership organization, the Board of Directors is self-perpetuating - they elect their own successors. Even a membership organization may set up its by-laws so that the Board is self-perpetuating, but the right to elect Directors is a commonly implied membership expectation.

So, to summarize, a non-membership organization is usually run entirely by the Board of Directors in every aspect. If an organization has members, the members must meet at least annually and there is a common expectation of voting rights in the members (especially with regard to electing Directors.)

The advantages of a membership organization are that they can be more readily seen as being organized to attract public support and obtain grassroots involvement. An active membership is a good source of funding and volunteers. However, even a non-membership organization can have grassroots participants, such as in projects or on committees, both in fund-raising terms and as volunteers.

The disadvantages of a membership organization are that they are more difficult to organize and manage - an accurate roll of the present members must be kept and membership meetings must be held, with a quorum, at least once each year. A membership organization may be more vulnerable to an outside take-over.

These are some of the primary ideas relating to the choice between being a membership or a non-membership organization.

Note: This memorandum was originally prepared for and submitted to Joel Eser Richman, Esq., a Hawai`i-licensed attorney practicing on Maui.