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What are Corporate Bylaws?
When a company has become incorporated, the corporation’s board of directors will adopt a set of corporate bylaws that act as detailed rules for the company.
Corporate bylaws are an important part of corporate governance because they detail how the company will be run. Bylaws will include rules about the management structure, meeting requirements, stock issuance, and other important company policies.
Corporate bylaws can be thought of as the operating manual for a company. They will dictate procedures and standards that the company will follow. Bylaws will state what a company can and cannot do and outline the roles of each director and corporate officer.
Unlike articles of incorporation , corporate bylaws are private and do not get filed with any government entity. Even though they are private, bylaws are required by most states for your corporation to legally exist.
How Bylaws Work
Corporate bylaws are usually written by the owners of the company. After the bylaws have been prepared, they must be approved by the corporation’s board of directors . Once approved, the bylaws will become part of the corporate records and must be accessible to the IRS or any other entity that may audit your corporate records.
Even if a company chooses to not have detailed bylaws, at the very least, they need to include the corporations name and identifying information like address and place of business. The corporation should be designated as public or private, and lastly, the bylaws should include the fiscal year of the corporation.
Do Corporations Need Bylaws?
Corporate bylaws are mandated by some state’s business laws. If you live in a state that requires bylaws, then you must have them for your company to be legally recognized as a corporation.
If you are not sure if you state requires corporate bylaws, check out the list below to see which state’s business laws mandate bylaws.
Bylaws are Required in the Following States:
- District of Columbia (DC)
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- South Carolina
- South Dakota
- West Virginia
If you don’t see your state listed, your corporation is not legally required to have bylaws. However, it is recommended that every corporation adopt a rule structure or corporate bylaws to successfully run the company.
Here is an article that goes further into Bylaws.
Examples of Corporate Bylaws
Corporate bylaws are created by the owners and board of directors of a company so bylaws will vary based on an individual company’s size, structure, and management needs.
Although the bylaws may be different, the following list includes rules and topics that will most likely be covered in any company’s bylaws.
Statement of Purpose:
The statement of purpose describes what the business does. It should include:
- The reason you started the business
- The target customers
- What the business accomplishes for customers
- What makes your business stand out from the competition
- How you will reach your business goals.
If your business is a non-profit and you are looking to file for tax exempt status, the statement of purpose is especially important. This statement will help determine whether your company qualifies for tax exempt status with the federal government.
The member section of your bylaws will layout the rules for the types of members your company will have, voting rights of the members, and procedures for adding members. Other important membership information includes:
- The rights and responsibilities of members
- The voting rights of members
- How membership can be revoked
Not all corporations have members so this will not apply to all companies.
Board of Directors:
The board of directors of your corporation is a very important part of corporate governance . The board oversees the officers of the company and because they are usually not employees, only report to shareholders. For this reason, your corporation’s bylaws should detail the roles and requirements of the board. These rules can include:
- The number of directors
- How directors are elected
- Required qualifications
- Length of terms
- How directors can conduct meetings
- The number of directors required to constitute a quorum
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Corporations are required to hold corporate meetings, specifically, an annual shareholders meeting . In addition to the shareholders meeting, monthly or quarterly regular meetings can be held, and special meetings may also be called. The bylaws will dictate how these meetings are called and noticed, and layout the procedures that will be followed during the meeting.
Depending on state in which your company is incorporated, there may be specific requirements that you must follow for the corporate meetings. If you are unsure of your state business laws, you could consult with a corporate lawyer .
Some corporations opt to create committees within their board of directors. Committees will perform specialized tasks for the corporation. If you choose to have committees within your corporation, your bylaws should include the following:
- The kinds of committees your corporation will have
- Meeting information for the committees
- How the committees will operate
- What the committees are authorized to do within the company
Committees will generally utilize specific knowledge by board members to make recommendations as to how to solve problems within the company. Some examples of committees that a corporation may form include:
- Executive committee
- Finance committee
- Fundraising committee
- Audit committee
- Research committee
- Ethics committee
Issuing stock to shareholders should be one of the first orders of business for a newly incorporated company. The corporate bylaws will detail the number and type of stock classes that can be issued, who is entitled to receive stock, and how stocks will be transferred.
Officers are usually employees of the corporation, and they oversee the day-to-day operations of the company and report to the board of directors. Officers can sometimes be board members, but this needs to be specified in the bylaws. The bylaws will also dictate how officers are elected and appointed and what responsibilities they will have. Common officer tiles you will find in a corporation include:
- Vice President
Conflict of Interest:
It is common for bylaws to require directors to disclose any conflicts of interests they may have that could prevent them from acting in the best interest of the company.
Policies for Amendments:
This section will dictate how any bylaws can be changed or amended.
For more examples of laws and rules that appear in corporate bylaws, read this article.
Corporate Bylaws vs. Articles of Incorporation
Articles of Incorporation are a legal document that is filed with the state when a business becomes incorporated. This document allows a business to be recognized as a legally functioning corporation.
Included in the articles of incorporation will be basic information about the business like the name, place of business, when the business was formed, and sometimes, who will be included on the board of directors.
Corporate Bylaws are the guidelines by which the company will run. The biggest difference between articles of incorporation and bylaws is that bylaws do not have to be filed with any government agency.
Corporate bylaws are like the operating agreements for corporations.
How To Write Corporate Bylaws
Most corporate bylaws usually follow the same basic structure even though the specifics will vary for each company. Bylaws generally begin with the corporation’s general information including the name and location of the company and the names of officers and directors.
Bylaws will then describe the reason why the company was formed and the goals of the corporation.
The body of the corporate bylaws is filled by the various laws that the company will abide by. This usually begins by describing the leadership structure and the roles and responsibilities of each member of the corporation.
If you are unsure how to structure your corporate bylaws, you can easily find a template online. Each state has different laws regarding what needs to be included in bylaws, so it is always a good idea to consult with a corporate lawyer when drafting this important document.
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I joined Enterprise Law Group, LLP as an Associate in March 2020. My practice has involved a wide range of legal matters from commercial real estate, finance and international business transactions to litigation matters including commercial disputes, personal injury and medical malpractice. Proficient in Spanish, I graduated from the University of Kentucky College of Law, the Patterson School of Diplomacy and International Commerce, and the University of Southern California. Prior to my legal career, I sought diverse professional experiences. After graduating from college, I orchestrated my own volunteering experience in southern Peru with a small non-profit organization. Later I gained valuable professional experience as part of a U.S. Senate campaign, and after that I joined the public policy team at Greater Louisville, Inc., Louisville's Chamber of Commerce affiliate. Prior to law school, I embarked on a month long excursion with the Northern Outdoor Leadership School in Alaska, which gave me a new found appreciation for sustainability.
Agnes Mombrun Geter is the Founder and Managing Attorney of Mombrun Law, PLLC. She is an experienced attorney and is a member of the Florida Bar, New Jersey Bar, and the Pennsylvania Bar. The firm's practice focuses on Estate Planning, Business Law, and Debt Settlement including IRS Debt Relief. The firm's goal is to simplify the law and provide clients with the confidence and information necessary to make their decisions. The firm also provides project-based legal services to other attorneys and law firms, along with assisting as personal counsel and local counsel on legal matters.
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