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Need help with a Bylaws?
Bylaws are a vital component of organizational governance. You can think of them as the machine by the product that ensures the organization meets its legal obligations. Whether your state or location legally requires bylaws, you should draft a personalized document since they can help your organization handle disputes, concerns, or questions as they arise in the future.
This article outlines the basics of bylaws, including the different types, what’s typically included, and much more.
What are Bylaws?
Bylaws are legal documents that organizations use to define the legally binding rules a corporate or nonprofit board of directors uses to operate. They address critical issues, such as quorum requirements, board member terms, annual meetings, and other top-level administration issues.
Many organizations choose to follow the rules of parliamentary procedure when defining and governing rules surrounding annual, executive, and special meetings.
You can learn more about bylaws by checking out this web page .
Purpose of Bylaws
The purpose of bylaws is to establish the set of rules that govern an organization’s internal operations with board members . Bylaws can address dividends, administrative functions, and board composition. Additionally, they contain information about the company’s share capital, location, and nature of business.
Historically, bylaws date back to the inception of commercial operations, when the prerequisite for operation focused on establishing goals, powers, resources, and legal plans.
A common mistake made when forming a business is not paying enough attention to the wording of bylaws, with some organizations even copying and pasting a boilerplate template that is unlikely to meet the legal situation. Ensure that you consider the different bylaws available and standard provisions to avoid this oversight.
Types of Bylaws
There are two types of board bylaws, including corporate bylaws and nonprofit bylaws . Board bylaws are legal documents that an organization uses to establish its internal management structure by outlining the rules and responsibilities of shareholders, directors, and officers. They establish meeting procedures, create voting rights, and define officer positions and responsibilities.
Organizations can amend bylaws to meet the organization’s needs. Generally, any amendments must be approved by the Board of Directors regardless of whether the organization is a corporation or nonprofit.
The two different types of bylaws are described below :
Corporate bylaws establish the structure and operation of your S Corp or C Corp . Many states even require them. They are beneficial as they eliminate uncertainty and ensure that board members and directors follow all legal formalities.
Nonprofit bylaws are the legally binding rules that govern the organization. They define the organization’s structure and direct the Board of Directors . Bylaws are essentially a nonprofit organization’s operating manual and follow Robert’s Rules of Order.
What’s Typically Included in Bylaws?
Your organization’s bylaws are private, internal documents that you don’t file with the Secretary of State’s Office, contrasting the Articles of Organization . Regardless of filing requirements, you cannot legally operate a corporation or nonprofit without bylaws in most states.
Boards of directors typically include the following terms in bylaws :
Term 1. Mission Statement
Your mission statement should encompass all facets of your business and its unique offerings. Essentially, it’s a statement of purpose explaining what your company fulfills in its market. This element is critical if you are a nonprofit corporation since it affects your ability to obtain tax-exempt status.
Term 2. Members
Member terms address corporate member issues, such as allowable member types, voting rights, and procedures for adding new members. Unless otherwise specified in the organization’s bylaws, a member may be an individual, a corporation, a general or limited partnership , an association, or any other entity.
Term 3. Board of Directors
Bylaws should provide information about the board of directors, including the number allowed, elections, qualifications, and term limits. Your bylaws can also specify the dates, locations, and methods by which your board meetings may convene.
Term 4. Shareholders’ Meetings
The annual shareholder’s meeting is the most critical legal requirement for an organization to uphold. Shareholder meetings may occur at any location approved by your board of directors. This provision should also specify meeting dates, notice of meeting requirements, agendas, and quorum voting terms under the shareholders’ agreement and founders’ agreement .
Term 5. State Requirements
Some states impose highly stringent requirements on shareholder meetings. These requirements will vary depending on the nature of the shareholder meeting and organization. Ensure that you not only consider Robert’s Rules of Order when drafting your bylaws, but you should also check with your local Secretary of State’s Office.
Term 6. Committees
You appoint smaller groups of directors within your board to perform critical tasks on committees. Committees usually comprise of board members convened for specific purposes while attaining the benefit of specialized knowledge, including:
For anyone with experience serving on a board, you know how instrumental these committees are for introducing corporate resolutions to the larger group. Ensure that you allow for special committees to keep your organization running smoothly and welcoming of fresh perspectives.
Term 7. Stocks (Corporate Bylaws Only)
Organizations should not conduct business until shareholders purchase stock. Your bylaws should describe how it will issue them, eligibility requirements, and stock classes. A corporation may offer common and preferred stocks, each with individual ownership rights.
Term 8. Officers
Your bylaws should include provisions for electing and appointing officers, as well as defining their responsibilities. They are responsible for the organization’s day-to-day operations and report directly to the board of directors, including the president, vice-president, treasurer (or chief financial officer for corporations), and secretary. An individual may serve as both an officer and a director and hold more than one office unless otherwise specified.
Term 9. Indemnification
Bylaws should contain a provision indemnifying its directors and officers against any liability incurred due to their association with the corporation. Typically, directors and officers seek indemnification to the maximum extent permitted by law.
Term 10. Conflict of Interest Possibility
Your bylaws should require directors to disclose both actual and potential conflicts of interest for board recusal. This provision is critical as it informs prospective board members of fiduciary responsibility and risk. It also communicates to stakeholders that procedural safeguards are in place.
Term 11. Modifications
Your organization’s bylaws should outline how they can be amended if the need arises vis-à-vis a modifications clause. Most corporations will need to review and amend them over time, especially if specific provisions become obsolete or unenforceable. Ensure that you draft specific rules around modifications so that they are not easily amendable yet not so restrictive that the organization cannot adapt over time.
Image via Pexels by Christina Morillo
Who Needs Bylaws?
Boards of directors of corporations and nonprofits need bylaws, in addition to their annual report , certificate of incorporation , and other essential legal documents as applicable by law. Bylaws control the operation of administrative work of the organization. As such, seek professional legal help when drafting bylaws so that your organization has a personalized document that functions as intended.
Get Legal Help Drafting Bylaws
If you serve on a board, work as a director, or represent your company as a founder, it’s critical to draft the bylaws that meet your legal needs. Corporate lawyers in your state can help you finalize the perfect documents. Connect with a legal professional today.
Meet some of our Bylaws Lawyers
June 13, 2022
I have been in practice since 1990 and practice in D.C., Maryland, and Virginia. I am an experienced litigator and look forward to resolving your legal questions as efficiently as possible.
June 20, 2022
Hello! I am an Iowa native trying to bring some Midwest problem-solving to southern civil law. I thoroughly enjoy getting to know the individuals and businesses I assist. I practice estate planning and business formation and, with my litigation experience in mind, I help clients plan to ensure they and their interests are protected in the future.
July 12, 2022
Danielle Giovannone is the principal of Danielle D. Giovannone Law Office. In her experience, Danielle has found that many business do not require in-house legal counsel, but still need outside counsel that knows their business just as well as in-house counsel. This need inspired Danielle to start her firm. Before starting her firm, Danielle served as Contracts Counsel at Siena College and as an attorney at the New York City Department of Education, Office of the General Counsel. At the NYCDOE, she served as lead counsel negotiating and drafting large-scale commercial agreements, including contracts with major technology firms on behalf of the school district. Prior to the NYCDOE, Danielle worked as an associate at a small corporate and securities law firm, where she gained hands-on experience right out of law school. Danielle has provided legal and policy advice on intellectual property and data privacy matters, as well as corporate law, formation and compliance, employer liability, insurance, regulatory matters, general municipal matters and non-profit issues. Danielle holds a J.D. from Fordham University School of Law and a B.S. from Cornell University. She is active in her Capital District community providing pro bono services to the Legal Project, and has served as Co-Chair to the Niskayuna Co-op Nursery School and Vice President of Services to the Craig Elementary School Parent Teacher Organization. Danielle is a member of the New York State Bar Association.
July 17, 2022
Anand is an entrepreneur and attorney with a wide-ranging background. In his legal capacity, Anand has represented parties in (i) commercial finance, (ii) corporate, and (iii) real estate matters throughout the country, including New Jersey, Pennsylvania, Delaware, Arizona, and Georgia. He is well-versed in business formation and management, reviewing and negotiating contracts, advising clients on financing strategy, and various other arenas in which individuals and businesses commonly find themselves. As an entrepreneur, Anand is involved in the hospitality industry and commercial real estate. His approach to the legal practice is to treat clients fairly and provide the highest quality representation possible. Anand received his law degree from Rutgers University School of Law in 2013 and his Bachelor of Business Administration from Pace University, Lubin School of Business in 2007.
June 12, 2022
I am a Florida estate planning and probate attorney helping clients achieve their goals through personalized legal strategies. Excellent communication, thorough preparation, and accurate execution are the keys to success.
July 8, 2022
Ahaji Amos, PLLC is a Houston-based intellectual property and civil litigation firm servicing clients throughout the U.S.
July 14, 2022
Combining extensive experience in litigation and as general counsel for a real estate and private equity company, I provide ongoing guidance and support to clients on a variety of transactional matters, including business formation, partnership agreements, corporate agreements, commercial and residential leasing, and employment issues.