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The bylaws of a corporation contain a detailed set of rules for the company. The bylaws provide guidelines for each key player in the corporation and important procedures for company operations. This document is usually drafted at the time of formation or shortly after.
A corporation is formed once the articles of incorporation are filed with the state. The major shareholders of the company draft the corporate bylaws. Once drafted, the board of directors will adopt the bylaws at their initial board meeting. While the articles of incorporation need to be filed, most states don’t require that the bylaws be recorded or submitted to the state. The bylaws do, however, need to be safely retained with the corporate records for internal purposes and also in case of an audit.
Why Are Bylaws Important?
Putting bylaws in place saves the owners of a corporation time by taking the guesswork out of resolving business complications. These rules and procedures help the corporation maintain consistency in daily operations.
The content of the bylaws is important, but having them in your corporate record may also be necessary to prove a clear separation between the entity and the officers as individuals. Since bylaws are considered a corporate formality, compliance in this manner may protect you and the company in the instance of a lawsuit in the future.
You will also need to have a copy of the bylaws for many business reasons, such as opening a bank account for the corporation, obtaining business loans, or setting up company benefits for employees.
What Information Is Typically Included in Bylaws?
The bylaws generally outline the responsibilities and duties of the corporate officers, board of directors, election procedures, terms of office, and annual meeting schedule. More specifically the following terms should be included in your corporation’s bylaws:
- The company’s name, address for legal notice, and principal place of business;
- The name and address of the company’s registered agent;
- The fiscal year and accounting method of the corporation;
- Information about shareholders, including notice requirements, voting rights, and classes of stock;
- The annual meeting procedures and requirements for notifying directors, officers, and shareholders;
- The number of initial board members, and the powers and responsibilities of the board, their term of service, and voting requirements for a resolution to pass;
- The board meeting frequency, location, and procedures;
- The process for removing or adding a board member or director;
- The procedures for corporate record-keeping, including the location of the record book and rules for inspection of records;
- The authorization requirements for entering into contracts and obligations;
- The details of how company stock will be issued and distributed, including stock transfers and sales;
- The rules for how committees are formed, committee member appointments, and their duties;
- The dissolution and winding-down procedures for the corporation;
- The method for handling conflicts of interest.
At a minimum, these provisions listed above should be included, but bylaws can be tailored to cover any number of rules that will help your corporation.
What is the Difference Between Bylaws and the Articles of Incorporation?
The articles of incorporation are sometimes confused with the corporate bylaws. As mentioned above, the articles of incorporation are the initial formation document that launches your company into legal existence within the state. The articles contain basic information about the founders of the company, registered agent, and type of entity.
Most states require that corporations have bylaws in place. The bylaws are established after the articles of incorporation are filed and are usually not required to be filed with the state. The bylaws are an internal governance document that expands upon the purpose and rules of the corporation as described in the articles of incorporation.