What are Bylaws for a Corporation?
Corporate bylaws (sometimes spelled as "by-laws") are the rules of a corporation, established by the board of directors during the process of starting a corporation. When a corporation is formed (a process called incorporation), one of the first tasks of the new corporation is to have corporate bylaws formed.
Bylaws are the rules that direct the operations of the corporation. Specifically, the bylaws direct the board of directors in their work to oversee the corporation. One of the first actions of the board of directors of a new corporation is to adopt the bylaws.
Articles of Incorporation
In the process of creating a corporation first, the company files Articles of Incorporation with the state in which it wants to do business. Articles of incorporation are formation documents; they contain only a few pieces of basic information about the company as needed to be registered with the state.
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.
How are the Bylaws Created?
Corporate bylaws are written by the owners of the corporation at the time of its founding. Sometimes the bylaws are written by the person in charge of setting up the corporation (called an incorporator); in other companies, the bylaws are written by the board of directors, with the help of an attorney.
The articles of Incorporation need to be filed with the state in which you incorporate, but the bylaws do not need to be filed with the state or federal government (unless the corporation is applying for non-profit status), but they should be kept with other corporate records in case of an audit.
What Is Included?
The by-laws should include:
- The corporation's identifying information: name, address, and principal place of business; designation of the corporation as public or private (selling stock to the public or keeping the stock shares between just a few people).
- The board of directors, including the number of board members, the general powers and duties of the board, tenure of board members, what number of directors is considered a quorum (the number that must vote for a resolution to be valid).
- If the corporation is a stock corporation, information about stockholders and voting of shares of stock, the bylaws also show 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, proxy voting.
- 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.
- Board meetings information, including frequency, location, and protocol.
- Procedure for corporate record-keeping, including rules for preparation and inspection of records and location of the corporate record book.
- Procedure for amending articles of incorporation and bylaws.
- Corporate board officers, including a description of their duties, how they are elected, and their terms of office.
- Information on how to replace a board member or corporate officer.
- The fiscal (financial) year of the corporation
- Rules on approval of contracts, loans, checks, stock certificates, and other types of corporate resolutions (see below).
- Financial audits and inspection of the corporate records, mostly for public corporations, but really for all corporations.
Board of Directors
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 Internal Revenue Service or your state or another entity which might want to audit your records.
What is a Corporate Resolution?
One of the most important duties of a board, as described in the bylaws, is to enact resolutions. These resolutions are decisions made by the board. These decisions must be in a specific format and must be recorded in board meeting minutes.
Do Partnerships and LLCs Have Bylaws?
Every business needs rules and guidelines to operate. Partnerships and LLCs have similar types of rules. For a partnership, this set of rules is a partnership agreement; for an LLC the rules are an operating agreement. The contents are similar to bylaws.
Do I Need an Attorney?
Bylaws are not a DIY project. Bylaws are complex documents, and they contain many pitfalls and requirements in order to comply with tax and legal requirements of the state in which the business is located and also with tax and regulatory requirements. Using an attorney to prepare corporate bylaws will save you money and legal issues later.