Writing Corporate Bylaws
Every startup or new business must navigate the maze of legal and financial tasks to become a thriving company. One of those tasks is writing corporate bylaws. The bylaws dictate the operating standards and procedures the corporation will follow. It outlines what the corporation can and cannot do.
This document is often confused with the articles of incorporation. The articles of incorporation is a document filed with the state. This document generally outlines the makeup of the corporation. The bylaws go into much more detail. You do not have to file them with an agency.
This guide simplifies the complex process. It explains the significance of each keyword related to corporate bylaws. Visit FindLaw's Incorporation and Legal Structures section to learn more.
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Before Writing Your Bylaws
Before diving into writing corporate bylaws, a startup should consider several foundational steps. First, determine the business name, ensuring it doesn't conflict with another corporate name in the state of registration. You will need to register this name with the state. If you use a DBA (Doing Business As) name, you will also need to register this name with the state. Business owners should familiarize themselves with state law. Each state has its own specific filing requirements and potential filing fees.
Depending on the nature of the business, one must decide on the type of legal entity. This can include sole proprietorships, limited liability companies (LLCs), or a more complex business structure like a C corporation or S corporation. An understanding of tax laws is crucial, given the varying tax rates and implications with the Internal Revenue Service (IRS).
Once you make these foundational decisions, it's advisable to secure an employer identification number (EIN). You can use this EIN to establish a separate bank account for clear financial demarcation. This can help protect your personal assets. You will also need to decide on a registered agent for your business who will accept service of process for your corporation. You will also need to get any required business licenses.
Bylaws are specifically associated with corporations. Both for-profit corporations (like C corps or S corps) and nonprofit corporations use bylaws. These bylaws detail the rules and procedures for corporate governance and operations. Other business entities, like sole proprietorships or LLCs, do not use bylaws. Instead, LLCs use an operating agreement. Partnerships use a partnership agreement to govern their operations. Let's discuss bylaws in more depth.
Corporate Bylaws: What They Cover
Corporate bylaws delineate the framework for how a business is governed and operated. They set forth rules and procedures for making decisions. They establish the roles and responsibilities of company officers and directors while also specifying the rights and obligations of shareholders. Additionally, bylaws address meeting protocols and voting procedures. The issuance and transfer of shares of stock are addressed as well.
Corporate bylaws will likely be more complex the larger the business. A typical corporation's bylaws will cover and contain the following:
- The corporation's identifying information (name, address, and principal place of business)
- Number of directors and corporate officers authorized for the corporation
- Type and number of shares and stock classes that the corporation is authorized to issue
- Procedure for board member and shareholder meetings, including frequency, location, and protocol
- Procedure for corporate record-keeping, including rules for preparation and inspection of records
- Procedure for filing annual reports required by the state
- What is considered a conflict of interest with respect to the corporation
- Procedure for amending articles of incorporation, or articles of organization, and bylaws
In essence, they serve as an internal manual to guide a corporation's daily operations. They help ensure consistent management policies.
Writing the Corporate Bylaws
A new corporation's bylaws are typically created by the person or persons who initiated the incorporation process (called the "incorporator"), or they may be written or formally adopted by the new corporation's board of directors as one of the board's first actions. The bylaws also should address the corporation's primary goals and reasons for existence.
A company's corporate bylaws typically will start off with the most general information, such as the company's name, location, and the names of the directors and officers. There also will be a section on when and where shareholder meetings are held and perhaps a statement that the board may call meetings as needed. The bylaws also should address what constitutes a quorum for voting purposes and rules for proxies.
Finally, the day-to-day duties and responsibilities of each officer (executives such as the CEO and CFO) must be spelled out in the bylaws. The exact contents of the bylaws will vary from one corporation to the next.
No Government Filing
While you must file articles of incorporation with either the secretary of state office in your state or a similar business filing agency, corporate bylaws are not filed with any agency. They are a key part of your corporation's business records. You may need to disclose them to potential investors, creditors, and other entities with whom your corporation does business.
Get Legal Help Writing Your Corporation's Bylaws
Writing your new corporation's bylaws is an important step on your organization's path to success. If you're going to issue stock, pay corporate taxes, or claim S corporation status, make sure to do it right the first time. To ensure that your new business covers all legal bases at all times during the incorporation process, you should consult with a small business attorney in your area today.
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