What are Corporate Bylaws?
Corporate Bylaws, also known as company or business bylaws, are a set of legally binding rules that a corporation creates to guide its internal management. In other words, it is a primary rulebook or manual for corporations.
Bylaws outline the policies, including the powers, responsibilities, and rules governing directors, shareholders, and officers, as well as the organizational structure of officers.
Why Corporate Bylaws matter for your business
Corporate Bylaws are important for corporations even if they’re not required by state laws. They are the regulations for the government of a corporation. Ways they benefit a corporation include:
- Defining structure by determining the roles and responsibilities of directors, officers, and shareholders
- Providing transparency of all the rules for operation and decision-making
- Helping prevent disputes between owners, directors, or officers
- Protecting directors and officers from personal liability for good-faith actions in the performance of their duties (e.g., using indemnification clauses)
- Establishing meeting, voting, and election procedures
Additionally, having bylaws may be a requirement by investors and banks. Creating thorough bylaws can create a positive impression with potential investors and lenders to help a corporation.
Key components of Corporate Bylaws
Important components of Corporate Bylaws include rules such as:
- The company's management structure which can be simple, for example, consisting of just the sole director of a start-up being president, treasurer, and secretary.
- Notice for directors meetings, which is the amount of notice to call a special meeting, if it's a requirement
- Allowance for remote meetings, stating whether or not directors’ and shareholders’ meetings will permit the use of remote communication
- Voting requirements like the percentage of votes that constitutes a quorum, if the shareholders can form voting trusts, and if cumulative voting is allowed
Additionally, bylaws include key elements like:
- Company details (e.g., corporate status, location, and name)
- Appointment of officers (e.g., will the director, incorporators, or shareholders appoint them?)
- Annual meetings (e.g., when the annual meeting of the shareholders will be held each year)
- Rules for lending money to directors, officers, or employees
- Financial details like the fiscal year-end
Are Corporate Bylaws required in my state?
Which businesses should use Corporate Bylaws?
Corporations are the type of business entity that may require having and maintaining bylaws. This includes nonprofits, S corporations, or C corporations. Types of corporate businesses that benefit from using bylaws include:
- Small businesses
- Large companies
- Remote teams
- Solo-owners
- Startups
Please note that limited liability companies (LLCs) do not use bylaws. LLCs outline their internal rules using LLC Operating Agreements or Single-Member LLC Operating Agreements.
How to write bylaws for a corporation
You can easily create your bylaws with LawDepot’s Corporate Bylaw template. Simply follow the steps outlined in our user-friendly questionnaire to make the bylaws valid for your state. These steps include:
- Filling in your company details (e.g., if it’s for-profit or nonprofit, incorporation status, and location)
- Adding requirements for shareholder meetings like meeting and voting rules
- Include directors’ details, such as how many will serve on the board, their terms, and meeting specifics
- Define which officers the company will have and how they are appointed
- Adding financial details such as whether the company can lend money to directors, officers, or employees, and if the company’s fiscal year-end will be included in the bylaws
When and how Corporate Bylaws take effect
The company's directors usually formally adopt the Corporate Bylaws at the Directors' Organizational Meeting. A later resolution of the shareholders will confirm the adoption of the bylaws, sometimes with amendments.
The minutes of that organizational meeting will record that the Bylaws have been adopted, so the document itself does not require signatures. However, various officers can sign to confirm their consent to the Bylaws.
Common Corporate Bylaw mistakes
When writing Corporate Bylaws, some common mistakes that can occur include:
- Using ambiguous or vague language that can lead to disputes over the bylaws (e.g., unclear quantifiers or confusing time frames with no specific times and dates)
- Making rules that are inflexible
- Not including clear terms for indemnification or amendments
- Lack of distinction between the roles and responsibilities of board officers and corporate officers
- Not following state laws or conflicts with other corporate documents (e.g., Articles of Incorporation)
- Not updating the bylaws when major changes occur (e.g., changes in leadership or business practices)
- Overloading bylaws with policies that should have their own documentation (e.g., Employee Privacy Policy, Employee Handbook, or Harassment Policy)
LawDepot’s customizable template allows you to create valid Corporate Bylaws for your state and help avoid common mistakes. If you wish to have your bylaws reviewed, consider consulting a lawyer for advice before signing your document.