What are Bylaws for a Corporation?
What are Bylaws for a Corporation?
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.
What is the Difference Between Bylaws and 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 by-laws are written by the owners of the corporation at the time of its founding . The articles of Incorporation need to be filed with the state in which you incorporate, but the by-laws 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 audit.
What is Included in Corporate Bylaws?
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 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 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.
How are the Bylaws Used by the Board of Directors?
After you or another corporate director or a committee of your board of directors has prepared the corporate by-laws, they must be approved by the board. The by-laws 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 I Need an Attorney to Prepare Bylaws?
Bylaws are complex documents, and they contain many pitfalls and requirements in order to comply with tax and legal requirements of the state and the IRS. Using an attorney to prepare corporate bylaws will save you money and legal issues later.
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