Learn more about what bylaws are in business.
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In the world of business, bylaws usually refer to corporate bylaws, the written rules established to govern a corporation.
Corporate bylaws are not to be confused with a corporation’s Articles of Incorporation, which is the document filed with the state to officially establish a corporation. The Articles of Incorporation cover more basic information while the corporate bylaws detail the specifics of how a corporation is to be run.
What are corporate bylaws?
When a corporation is formed, those creating the corporation, usually the incorporators or the initial board of directors, write and adopt corporate bylaws to spell out how the corporation will be organized and operated.
Once elected, a corporation’s board of directors will oversee and adhere to the bylaws. The bylaws will usually include rules for making any changes to the bylaws.
Requirements for Corporate Bylaws
Most states require corporations to adopt bylaws, though they usually aren’t required to be filed with any state agency. Once completed, the bylaws should be kept in a safe location along with other important documents for the corporation.
The specific requirements for corporate bylaws can vary from state to state, but they’re usually required to be made available to the Internal Revenue Service (IRS) or any other government agency that may want to audit the corporation.
Benefits of Corporate Bylaws
Even if adopting corporate bylaws isn’t required in a state, the bylaws still provide important benefits:
- The bylaws establish operating procedures for how the corporation will governed, including things like how and when the board of directors will be elected. They also clearly establish the parameters for how the corporation will meet other requirements, such as the time and place of the annual shareholder meeting.
- Having bylaws gives the corporation further legitimacy when applying for a loan, dealing with other businesses, or facing a lawsuit. If someone takes the corporation to court to try to “pierce the corporate veil” by arguing that the corporation isn’t a separate entity from its shareholders, having bylaws in place further demonstrates to the court that the corporation is a separate and legitimate legal entity.
- When changes in management, the board members, and/or shareholders occur, having bylaws in place helps provide continuity for the corporation.
What’s included in the corporate bylaws?
The specific items to include in your corporate bylaws will vary depending on your circumstances and your state requirements, but most corporate bylaws cover the following:
- Basic information about the corporation – Much of this will be the same information provided in the Articles of Incorporation, things such as the official name and address of the corporation.
- Board of directors information and policies – The bylaws should specifically state the number of directors on the board, their responsibilities and qualifications, and how and when they are to be elected. It’s important to include specific information about how a board member can be removed as well as how to appoint a new board member to replace one who is removed, steps down, or passes away.
- Corporate officers – The board of directors appoint officers to run the daily operations of the corporation. As with the board of directors, the bylaws can spell out how officers are chosen, their qualifications, and other specifics.
- Shares – The bylaws can include the number of shares and their stock classes. This should align with what was listed in the Articles of Incorporation.
- Meeting specifics – Because the directors and shareholders are required to meet annually, the bylaws need to specify when and where the meeting will happen. The means of informing the shareholders of the meeting also needs to be detailed, along with the voting requirements, means of voting by proxy, and any other specifics.
- Rules for amending bylaws – The bylaws need to provide clear instructions for making changes to them, including the number of votes required to approve changes.
- Disclosure of conflicts of interest – If a director has a conflict of interest that would affect their ability to serve the corporation, the bylaws can require the conflict to be disclosed and specify how the board will deal with it.
How We Can Help
If you form a corporation with our business formation service, we can supply you with a customizable template to create your corporate bylaws. Contact us today to see how else we can help you start, run, and grow your business.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
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