What are corporate bylaws?
You run a successful business.
You’ve grown and expanded, and now the time has come to incorporate.
You’ve acted as a registered agent and filed your article of incorporation. It’s time to start drafting your corporate bylaws, but where do you begin?
What are corporate bylaws and why are they important?
Also known as company bylaws, corporate bylaws are a set of rules and regulations that guide day-to-day operations and lay out the management structure of an organization.
This set of documents is legally binding.
Bylaws allow businesses to outline policies and expectations of the members of the board and others within the organization.
Corporate business bylaws help ensure that every team member and stakeholder is on the same page.
These key corporate rules and regulations keep things running smoothly.
Think of bylaws as an operating agreement or manual for your organization.
They provide a road map for things like annual meetings, the corporation’s board, member duties, and how to handle disagreements or disputes.
You don’t need to write your corporate bylaws just for the benefit of efficiency and consistency.
You also need to create and maintain them to stay compliant with local laws. In fact, most states require businesses to do so.
Bylaws will become part of the corporate records and, therefore, accessible to legal and regulatory entities such as the IRS.
What to include in a corporate bylaws draft
Bylaws are effective planning tools for anyone asking questions like what does an LLC mean in business? (It means you can set up a corporate structure without having to pay corporate taxes).
In other words, they help you answer important questions about your business’s management structure and fiduciary responsibilities.
They are very useful for any sized business.
Creating such an internal document is a necessary step towards building a successful organization that is large enough to incorporate.
The following are common components to include in your bylaws draft:
1. Basic identification information
Your corporation’s name, principal place of business, fiscal year, and any other identifying details.
You may also want to include any satellite locations.
2. Statement of purpose
Who are the customers, what is the motivation, and what is the ultimate goal of the business?
3. Board of directors
Outline your first line of corporate governance.
State details like the number of your corporation’s directors, how vacancies are filled, length of terms, their duties, how to conduct meetings, and other relevant policies.
What positions are in charge of your daily business operations?
Here is where you will define the roles and responsibilities of each titled corporate officer. Officer titles can include:
- Vice President
- Chief Executive Officer
- Chief Financial Officer
- Chief Operating Officer
- Chief Technical Officer
5. Member definitions
Who are the members of your corporation?
Outline the types of members, electing policies, candidate qualifications, voting criteria, and other details.
Most importantly, outline your annual shareholder meeting.
Also include rules for special meetings you may hold.
You will want to include where, how, and when shareholder meetings take place and what constitutes a quorum for meeting purposes.
Define how committees will be chosen and what responsibilities they have.
You’ll need to include details about the creation or disbanding of any committees.
8. Stock issuance
What classes of stock are available and how they will be issued. Define who is entitled to receive stock and how stock certificates will be issued.
Your first bylaws draft will need to include policies for future amendment. Outline when rules can be changed and what procedures that entails.
How to write corporate bylaws
Creating your corporate bylaws is no simple task. You will likely need to review several drafts before signing off on the final article.
First, do your due diligence to research what’s needed for your business to comply with legal requirements.
After that, start at the top and work your way down. Begin with rules and definitions dealing with the corporation as a whole.
Next, work your way through the number of directors, officers, stockholders, and their number of shares, and members.
After that, expound on areas like board meetings, appointing positions, voting rights, and other management details.
Once the structure of the organization has been laid out, you can then concentrate on writing your operating policies like how to handle conflicts of interest and indemnification.
The last section of your corporate bylaws should deal with the policies on how to alter, add, or remove rules and regulations from the document.
When tackling the task at hand, consider getting legal advice from a corporate law firm.
You can also find real-world examples of corporate bylaws by checking with non-profit and publicly traded companies that make this information readily available.
Even better, you can streamline the process with our free corporate bylaws template.
Are bylaws required for a corporation?
Corporate bylaws are required for corporations in most states.
Even if your business is based in a state like New York that doesn’t require them, it’s best practice to have them in place anyway.
While not strictly required, many legal services will advise small businesses and startups to set up internal rules or company bylaws.
By maintaining bylaws, you will help your incorporated business run like a well-oiled machine.
They’re also useful when conducting business, handling legal incidents, or seeking a loan.
Articles of incorporation vs bylaws
The principal difference between bylaws and articles of incorporation is the level of detail each one provides.
When a business first incorporates, it must register with the Secretary of State.
The legal documents to do so are known as articles of incorporation and contain basic information about the business.
Details like corporation name, address, date of formation, and the board of directors’ names can be included.
Corporate bylaws are more comprehensive. They detail how a corporation is structured and how it will run day-to-day operations.
Easily draft your corporate bylaws
So, what are corporate bylaws?
They’re a foundational legal document for business success.
You don’t need to wait until you incorporate, you can get started now, even if you’re a small business or startup.
This will ensure you have a head start on operational management. You can make creating corporate bylaws a breeze with PandaDoc’s help.
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