The Three Essential Documents
To start a legal entity using sociocracy, it is essential to understand legal documentation.
In creating an organization there are three foundational and inseparable questions that must be answered.
- To serve what purpose are we inviting people to come together in this organization?
- Who will be the decision-makers?
- How will decisions be made?
Too often organizations are created without clarity. If you create an organization and you have not decided how decisions will be made from the very start, then how will you decide how to make decisions? If you have not defined from the very start who the decision-makers are, then how do you know who can make decisions?
These questions are answered in the legal documents of an organization. There are generally at least three governing documents for any organization, and they vary in the degree to which state or federal law mandates what is in each. If you want to include sociocracy in your organization, you may want to include it in your governing documents.
What are Articles of Incorporation?
The first document is the most essential and the least customizable. Its primary purpose is to establish and name the legal entity and, often, describe its purpose in general terms. It may be titled the Articles of Incorporation, Certificate of Incorporation, Articles of Organization, or some other similar name. (1) What goes in this document is primarily governed by the corporate law of the state where the entity is being formed. The document usually follows a defined format and must be approved by and filed with the governmental agency appropriate to your location and the nature of your organization. In some cases, the document may need to first be approved by other governmental agencies—for instance, state law may require a private school’s draft Articles of Incorporation to get approved by a state department of education before the entity is incorporated. The Institute for Peaceable Communities, Inc. (DBA Sociocracy for All) is a nonprofit corporation, and its Articles of Incorporation are registered with the Secretary of the Commonwealth (State) of Massachusetts, USA.
What are Bylaws?
The second document is usually called the Bylaws but may be called an Operating Agreement or by other names. and it sets out the basic governance structure and decision-making process of the Board, membership, and any other people in a role of governance or decision-making on behalf of the group. In some cases, bylaws are filed with a government agency. (2) Customizing your bylaws allow your group to vary from the default corporate laws applicable to this organization. This varies by the provision, and you should be careful reading your state corporate law to determine whether a rule allows you to vary from it, or whether the law requires that your entity follow the minimum standards presented by the rule.
What are Policies and Procedures?
In addition to your Articles of Incorporation and Bylaws, many entities will also have other internal agreements, sometimes by choice and sometimes because required by some law or rule. Many groups opt to have documents that spell out policies of the organization not included in the first two documents – not only governance-related but also all other policies such as pet policies, land use policies, personnel policies and so on. These may go by various names such as “Policies and Procedures,“ “Rules and Regulations,” or “Community Agreements.” Some groups may choose to adopt a “safe space” policy or to adopt a sexual harassment or anti-discrimination policy that goes beyond statutory minimums. Other policies may be required by law—for instance, certain nonprofits are required to adopt conflict-of-interest policies or whistleblower policies. All of these voluntary policies are relatively easy to change and can be done in any way specified in the Bylaws or the Policies and Procedures document itself. This third type of document is typically not filed with government agencies, but it is usually referred to in the Bylaws with a statement that the organization and its members are bound to follow its Policies and Procedures as well as its Bylaws.
Sociocratic groups sometimes also choose to have a document that is about operational policies of work units – policies that do not impact the whole organization directly. These policies may just be stored in the logbook of the particular circle. These policies can be changed at any time by the circle without approval by the Board or HOA.
When do you include sociocracy in these legal documents?
In general, Articles of Incorporation are somewhat hard to change, Bylaws are moderately hard to change, and Policies and Procedures are relatively easy to change.
You may want to put the essence of sociocracy in the Bylaws and the details in the Policies and Procedures. The aim is to make it hard to drop sociocracy as the governance philosophy and framework but to make the practice of sociocracy continually adaptable.
Leave out sociocracy if you want to because it may be controversial. Alternatively, put it in and advertise it.
Why Bylaws and Other Written Policies are Important for Implementing Sociocracy
If there is a dispute between members of an organization that does not have clear documentation of how it makes decisions, and the relevant corporate law is not clear on how decisions will be made in the absence of a stated organizational policy, a judge might be forced to try to interpret whether an entity made a certain decision or not, and what that decision may have meant. A judge would do this based not on a deep understanding of sociocracy but rather on the information available to him or her: evidence of past practices by the entity, evidence of what is typically done by similar businesses or organizations, and what the judge deems to be reasonable given the circumstances. The more unconventional or unusual a set of practices might look to the judge—and most judges are unlikely to be familiar with sociocracy—the more likely he or she might be to simply impose default corporate rules, bypassing the entire intent of your sociocratic model.
To learn more about governing agreements using sociocracy, see our legalizing sociocracy page.
Need help? Schedule an initial free consultation on your governance documents here.
1. Not all entities are incorporated. Some groups choose to remain incorporated, but they may still want to adopt some kind of organizing document to help them open a bank account or operate with the protections of unincorporated entity status available in some states. They should still consider bylaws and other written policies to best implement a sociocratic model.
2. I have never seen a state require bylaws to be submitted to a state department. There are specific cases where they would have to be: if it is required as a securities filing by the SEC or a state securities office, if it is required to solicit donations for a charity by a state charities bureau, if the organization is applying for 501(c)(3) status—but that doesn’t have to do with formation so much as the regulation of certain kinds of activities (soliciting investments or donations).