The bylaws of a corporation are the governing rules by which the corporation operates. When a corporation is formed, the first act of the board of directors must be to create the bylaws, which is a single document encompassing all the rules.
Most businesses work with an attorney to write the bylaws. Still, it helps to learn about bylaws and why they're important to running a business and maintaining order in an organization.
What Are Bylaws?
Think of corporate bylaws as the overall guiding principles for operating the business. These principles direct the board of directors in their work to oversee the day-to-day operations of the corporation.
- Alternate definition: Bylaws are rules put in place by a society to regulate its members and maintain civility.
After you or another corporate director or a committee of your board of directors has prepared the corporate bylaws, they must be approved by the board. The bylaws are part of your corporate records and must be in a place where they can be viewed by the IRS or your state or other entity which might want to audit your records. Corporations are regulated by states, and your state may have specific procedures and regulations you must follow.
How Bylaws Work
Corporate bylaws are written by the owners of the corporation at the time of its founding. Bylaws discuss issues like corporate officers, the board of directors responsibilities, how they are elected, terms of office, how and when board and shareholder meetings will be held, and how the board of directors functions.
At a bare minimum, your corporate bylaws should include the corporation's identifying information such as name, address, principal place of business, designation of the corporation as public or private, and the fiscal year of the corporation.
The bylaws should also include the number and type of shares and stock classes that the corporation is authorized to issue, information about shareholder meetings—including notification of a meeting and voting by proxy—annual meeting procedures, and requirements for notifying members. Every corporation must have at least an annual meeting, so this is an important part of the bylaws
The board of directors are an integral part of a corporation, so they should be included in the bylaws. This should consist of the number of board members, general powers and duties, terms of service, and the number of directors considered a quorum. Once board officers are selected, include descriptions of their duties, how they are elected, and their terms of office.
It's essential to specify the process for replacing or removing a board member or corporate officer.
Bylaws vs. Articles of Incorporation
Before the new corporation exists, it must register with the state where it is doing business. The document that is registered is the Articles of Incorporation. This incorporating document contains a few pieces of basic information about the company as needed to be registered with the state. For example, Articles set the name and address of the company, a starting date, whether or not the company will be selling shares of stock, and possibly the names of members of the board of directors.
After the company is formed, its board of directors is established. The board decides on bylaws to help direct its operations over the life of the corporation. Your corporation's bylaws are all about your board of directors and how they must operate to run the company.
When you start your corporation, you will need to file the articles of incorporation with your state to establish the corporation's existence in that state. You don't need to file the bylaws (unless your corporation is applying for non-profit status), but they should be kept with other corporate records in case of an audit.
- The bylaws of a corporation are the governing rules by which the corporation operates.
- Bylaws are created by the board of directors when the corporation is formed.
- Corporations are regulated by states, so rules may vary.
- Articles of Incorporation are different from bylaws; they are filed to establish a corporation.
- Societies put bylaws in place to govern their citizens.