Corporate bylaws are the overall principles of running a business that direct the management of the corporation in their planning of corporate day-to-day activities.
Bylaws are one of the most important legal documents when it comes to setting up a corporation. Documenting of bylaws helps a business ensure it is having a consistent operation that adheres with its strategies and business goals.
The document is one of the legal bases of a company’s operation which is why all corporations should draft bylaws. It is also legally required by the majority of states. Read further if you want to learn how to write corporate bylaws and where you can get a free corporate bylaws template to customize for your business.
Bylaws usually use standardized terminology that includes the following terms:
Bylaws have to explicitly define certain concepts to ensure that the company will operate smoothly in adherence to state laws. Here is the primary information that should be outlined in the document:
1. Name of the corporation and state of registration
The document should start with the name of the corporation. This is usually the name that was specified in the articles of incorporation. Along with that, it should specify the state of incorporation, that is, the state where the company was formed.
2. Principal office and registered agent
The principal office is the official address of a corporation that should be mention on their official website, legal documents, etc. It should not be necessarily the same as the working address of the business (which might be outside of the state of incorporation) but should be located in the state of the company’s registration.
A registered agent is a person or business entity who is authorized to receive legal documents and all correspondence on behalf of the corporation. The registered agent should be present at the physical address of the corporation during working hours.
3. Purpose of the incorporation
Purpose of incorporation or the statement of purpose has to be included in every corporate bylaws as it describes the goals of the business entity, that is, why it was founded. It is one of the most essential information in corporate bylaws as it lets current and future management and officers know the purpose behind setting up the corporation and its goals for the future. An additional benefit of having a clear statement of purpose is giving prospective investors a better understanding of the company’s mission and vision.
The purpose of the statement is to provide information on:
The corporation may be specified in this section, but to ensure keeping flexibility in the dynamic business world, it’s better to be broader and mention the purpose as “any lawful services or activities.”
However, being specific might help the owners not let the company’s workers stray from the primary goal of the business. In such a case, the wording should limit the scope of services.
If a corporation is a non-profit one, the statement of purpose is extremely important as this information will influence the company’s ability to qualify for non-profit corporation status and be approved by the International Revenue Service as a tax-exempt organization. In order to qualify as such, a corporation does not have to use a specific language as it is not required by law, but a certain language is recommended. It is better to seek legal advice before writing the statement of purpose.
4. Board of Directors
Directors of a corporation are individuals who help determine the business’s strategic steps and have control over their implementation. They supervise the corporate officers’ work but unlike them, are not employees and are accountable only to the shareholders.
The Board of directors might consist of only one director, but in case the number of directors is more than one, it is wise to try to include an odd number of members as it will simplify voting procedures.
Bylaws should specify the number of members of the board of directors, their rights and powers, method of election and removal, and other important information.
5. Meetings of shareholders
Bylaws should also specify the way of holding shareholders’ meetings. The meeting of shareholders (they are also referred to as an annual meeting) is crucial for the operation of a business as it allows its members to vote on corporate matters. Among such matters usually are:
This is why it is important to write the following information in bylaws:
If a corporation has only one or several shareholders, annual and special meetings can be held without a meeting in its common sense. They might take place on paper and do not require the physical presence of members. If there are more shareholders in a corporation, annual meetings should take place at a physical location approved by the board of directors.
6. Meetings of directors
Meetings of directors are of no less importance than meetings of shareholders as the board plays a crucial role in corporate governance. Meeting of directors are held to deal with primary operational affairs in the corporation, for example:
Corporate bylaws should mention at what place and time the board of directors might conduct meetings, and how many votes should be collected to make a decision.
It would be wise to include a clause about actions that might be authorized without a meeting. Usually, actions by written consent are permitted by states’ laws unless otherwise provided in the articles of incorporation or corporate bylaws.
Bylaws should also touch on the election and appointment of corporate officers. These are usually employees of a company who implement tactical missions of the company. These are:
In a typical corporation, there is at least a president, one vice president, a secretary, and a treasurer. Some positions might be combined. For example, states’ laws allow a person to be an officer and a director at the same time. However, the same person cannot be the president and the secretary. All of this should be explicitly specified in corporate bylaws.
A corporation’s officers are accountable to the board of directors, and the latter generally appoints them on an annual basis. It is also the board that can decide to remove a corporate officer at any time.
The document should specify whether officers are also board members and describe their powers and duties in the company.
In a corporation, the stock or equity is presented as shares, and each of the latter shows a percentage of ownership in the company.
A corporation might issue two classes of stock:
1. Common stock.
This form of equity ownership allows holders of such to elect directors of a corporation and decide on corporate policies. One of the benefits is that in a long run, common stockholders can get higher returns. The disadvantage is that in the case a corporation is liquidated or sold, the rights to a corporation’s assets will be given to such stockholders only after other categories of holders are paid in full.
2. Preferred stock.
It gives a shareholder more preferences (rights) than common equity. Such preferences imply:
Preferred shareholders have more control over the corporate life of a company than common ones. Another advantage is that they are at the forefront when it comes to the distribution of corporate assets if a company is liquidated or sold.
Stock is an important section in bylaws as a corporation that has not issued stocks to its shareholders cannot do business. The document has to specify the procedure of issuance of shares of the stock, including who and how will get the certificates. It should also specify different classes of stock.
In order to make decisions at a meeting, there should be a quorum, which is the minimum shareholder presence. It signifies not the number of shareholders, but the percentage of shares the voting shareholders possess. In the majority of companies, shareholders possessing 51% of shares constitute a quorum.
However, the quorum of directors differs from the quorum of shareholders. It is based on the number of directors voting for a particular decision. Usually, the majority of directors constitute a quorum at a meeting.
Another important piece of information that should be outlined in corporate bylaws is the method of reporting on the financial performance of a corporation. The document should state the periodicity of reports to shareholders. They might be done every month, quarter, or year.
A corporation might be required to file an annual report with the Secretary of State that would describe in detail all activities of the company from the corporation s fiscal year. It will depend on the laws of the state of incorporation.
Every bylaw should include an indemnification clause. It is meant to indemnify a corporation’s directors and officers from any responsibility that might arise due to their connection with the company. The clause commonly indemnifies and holds harmless directors and officers to the maximum extent allowed by the laws of the state of incorporation.
12. Conflict of Interest
This provision of corporate bylaws should make directors of a corporation responsible for disclosing actual and potential conflicts of interest. The clause also lets them exclude themselves from any discussions in regards to conflicts of interest that might be considered by the board members. Including such a provision in corporate bylaws shows what duties will fall on the board of directors and lets prospective partners of the business entity see that it implements measures to prevent abuses.
Last but not least, corporate bylaws should have a provision about the procedure of bringing changes to the document. Even though bylaws should be crafted very thoroughly so that nothing has to be amended in the future, there might be a need to review the document and update some information. The amendment provision should comply with the state laws and articles of incorporation as well as any existing regulations inside of the corporation. The document is generally reviewed and changed every few years.
Once you have all the important information about the corporation in place, you can draft your corporate bylaws. Our document builder is at your disposal! Just answer some questions regarding your company and get your customized bylaws in less than 10 minutes.
Hold the initial meeting
At an initial meeting of the company, the initial incorporators should be gathered. Their goal of the first meeting is to establish the corporate structure of the corporation, that is, the election of the initial directors and officers. Along with that, the initial meeting is held to authorize the issuance of shares to the initial stockholders, choose the bank for cooperation, and establish the principal place of business. Many other important details might be decided at this meeting too.
The meeting should be held after the company is legally existing and is authorized to start operation. In the best-case scenario, the meeting should happen after the company receives a copy of the submitted articles of incorporation which is proof of getting authorization to run a business provided by the secretary of state.
Create the policies
After selecting directors of the company, it is time to make rules for the business entity. They should concern:
Craft the corporate bylaws
You can use our instructions below and the free corporate bylaws template to fill in the blank spaces with the details of your corporation to get a customized document. Or, you can make use of our online document builder that will let you get a ready-made document after answering some questions about your corporation.
To validate the document, you should have it signed by a secretary for the business or other administrative person. Check your state laws to make sure that you don’t miss out on any important requirement for corporate bylaws. The document might also be signed by the majority of stockholders and notarized, but it is not the states’ requirement.
Start your business activities
After bylaws are created, the Internal Revenue Service should issue an Employer Identification Number (EIN) or the Federal Tax Identification Number which allows for identifying the business entity. This will let a corporation start its business operations. Usually, it starts with creating bank accounts and hiring workers.
Corporate bylaws should not be confused with articles of incorporation. These are two separate types of corporate documents that have different purposes and have to be filled out with different information.
Bylaws are supposed to touch on the topics such as the way of electing the board of directors and corporate officers, the types and duties of the latter, conducting meetings, etc. The document is supposed to provide detailed information about the corporation’s structure and the powers and duties of the workers.
At the same time, the articles of incorporation describe the basic outline of the company – the name of the founder of the corporation, its location, the number of shares the corporation is about to issue, the members of the company’s board of directors. Unlike corporate bylaws, the articles do not provide details about the company’s operations and structure.
What is distinct about those two documents is that the articles of incorporation have to be filed by the incorporator on behalf of the corporation with the office of the secretary of state, while there is no such requirement for bylaws. As well as that, any changes brought to the articles of incorporation would require paying a certain fee. With corporate bylaws, the changes do not require making any payments and can be done by a vote of the board of directors.
Whether corporate bylaws are required for a corporation or not usually depends on the state of incorporation.
There are 31 states that explicitly require corporations to adopt initial bylaws which are specified in their statutes. Others do not have statutory requirements that would explicitly require corporations to adopt bylaws, but some of the states might do it implicitly. For example, Nevada in the Nevada Revised Statutes and California in the California Corporate Code have the rule that corporations should keep copies of corporate bylaws at their registered or principal office. Provisions of the same California Corporate Code also allow assuming that if the number of directors is not determined by the articles of incorporation, bylaws have to specify this information.
Even despite the fact that not all the states explicitly require corporate bylaws, it is highly recommended to have ones as it is considered an appropriate corporate formality.
The first section introduces the document and specifies the name of the corporation that created it.
The first paragraph should state that the corporation is a duly organized business that has the right to run in the state of incorporation. It should also include the date of the creation of a corporation
The next section should tell about the annual meeting of shareholders. In particular, it should touch on its purpose, the period within which a meeting should be held after the initial meeting of the corporation, and who can initiate an annual meeting if it wasn’t held within a certain period after the initial meeting.
A separate section can be created for special meetings of shareholders. It should specify who might initiate them, what the procedure is, and who should determine the time and place of a meeting.
The following section should deal with the place of meetings. It should specify who shall determine the place of a meeting (most commonly, a corporate meeting takes place at the principal executive office of the corporation). It might also indicate how annual and special meetings should be held (in person or by proxy) and how shareholders and their proxies can prove the fact they are such.
The next clause should tell how the corporation can be dissolved. Most commonly, it is the majority vote of the directors and the majority vote of shareholders that let make the decision at a meeting.
The next step is specifying how the notice about holding a shareholder meeting should be sent. The information that should be in this section is what should be included in such a notice and when it should be sent to shareholders, for example, not less than 5 days but no more than 30 days before the date of a meeting. It might also state that the notice should be sent by email or delivered in person.
This section should state that to hold an annual or special meeting of shareholders, a quorum must be present (specifying whether it requires the personal presence or allows the presence of shareholders’ proxies). It also has to explain what constitutes a shareholder’s quorum at a meeting.
Further, the actions of the corporation should be included. The section should mention whether the action can be made at a meeting with a present quorum only, or without a meeting by having the written consent of all necessary members of the corporation.
Mention whether a corporate seal is required or not.
The next section should explicitly tell how corporate documents should be executed. It should specify who has the authority to sign corporate documents including contracts, deeds, checks, notes, and other documents in relation to the company’s operation. Among authorized persons might be a member of the board of directors, president, vice president, CEO, and other corporate officers.
One of the most important pieces of information to mention in bylaws is indemnification. It should tell that any director or officer of the company should be held harmless by the corporation to the extent permitted by law. It should also state that if laws of the state prohibit indemnification, the corporation cannot write it in their bylaws.
Bylaws should also include the provision about amendments. The section should state how the document can be changed. Typically, changes can be made by the majority vote of the board of directors or shareholders.
Every bylaw should also mention whether the corporation can issue stock certificates. If the stock is uncertified, the bylaws should mention that shareholders of the corporation should get written statements with the information required by laws of the state of incorporation.
A comprehensive section that should be included in bylaws is pr0vision about directors. It should specify the minimum number of directors who are members of the corporation’s board of directors. The clause should also mention whether there should be a board chairman and with what frequency they should be re-elected and how many votes should be collected in order to elect one. It would be appropriate to include the overall duties of the board chairman.
In addition to the above-mentioned information, the section might state that a director of the corporation is required to be neither a shareholder nor a resident of the state of incorporation.
It is important to also specify in this section how directors of the corporation are nominated. For instance, the board of directors can be elected by the vote of shareholders holding a majority or plurality of votes. Another thing to mention is the term for what directors are chosen.
The section might also specify what constitutes a quorum of the board of directors, how often regular and special meetings should be held, whether electronic participation is allowed, how directors might be removed, whether there are any committees in the corporation, how directors are compensated, etc.
After the section about directors, there should be a clause about the corporation’s officers. It should state who is considered an officer of the corporation, specifying the powers and duties of each of them. Usually, such a provision includes information about the president, vice president, treasurer, and secretary.
Bylaws cannot be full without the section about the list of shareholders. It has to state who should prepare such a list, when it should be made, etc. It should also explain that if the laws of the state allow that, the list should be open for examination by shareholders.
The certification section should include the signature of the secretary and the date when the bylaws were adopted.
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