Corporate Bylaws: What They Are and Why You Need Them
Forming a business is a complicated process of completing documents and filling out forms. Most of this paperwork must be filed with a specific government entity, and with so much on your mind at this state, it’s easy to let the documents that don’t need to be filed anywhere fall by the wayside. However, don’t let this happen with your bylaws.
Your Articles of Incorporation contain important information—your business name and location, your date of incorporation, the contact person for your entity—but the purpose of the Articles is really to provide this information to the state so that they can record your existence.
The Articles say nothing about the actual day-to-day governance of the corporation, and they don’t specify company policy as to how to approach and respond to certain circumstances—the death or resignation of an officer, the sale or bankruptcy of the company, the percentage of board members necessary to convene or vote, and so on.
As I hope it’s becoming clear, your corporate bylaws are absolutely essential to the success and continuation of your corporation. (In fact, despite the fact that this is an internal document and will not be filed with any government entity, your corporation technically does not exist until the bylaws are officially adopted!)
After working so hard to form your company, it’s true that the last thing you want to think about is your company’s tragic end. But in reality, it’s a vitally important document to have around—you never want to have to use it, but it’s there just in case the worst should happen. In business, you can never be too careful.
Since bylaws are not filed with any government entity, there isn’t a handy one-size-fits-all form you can simply complete and be done with. However, corporate bylaws don’t have to be complicated. As long as the required information is present, the format doesn’t matter significantly.
A typical bylaws document will contain the following sections (again, the format can vary widely):
Your registered office is required in your Articles of Incorporation, so you’ll already have this on hand. If you have a principal executive office (your President’s office) that is located somewhere else, this can be listed here as well.
You’ll need to specify when the shareholders are to meet regularly, who is able to call special meetings of shareholders, what the procedures are for providing notices of these meetings, how directors are appointed, and how many people in specified capacities constitute a quorum.
3. Board of Directors
How many will there be? What are their qualifications? How long is their term of office? How may they be removed from their post? How will vacancy due to death, resignation, or removal be addressed? How will they be compensated?
This section will lay out the terms, powers, and specific duties of the President, the Vice-President(s), a Secretary, a Treasurer, and any other offices and agents. The procedures to be followed in the case of death, resignation, or removal of the officers will be laid out.
5. Shares and Share Transfer
Treatment of shares and share certificates should be specified, as well as the procedures for transferring shares and replacing lost certificates.
6. Corporate Records
All corporate documents and financial records should be kept in a location provided here.
7. Financial and Property Management
Companies budget for the year based on a 12-month period; this fiscal year can start on any month desired, which should be listed here. The specific officers or directors who may sign contracts, obtain loans and fidelity bonds, and other business transactions should also be provided.
If anything about your business has changed since your formation documents, it’s important that you keep these records. This section discusses the amendment stipulations your Board of Directors has approved, among other amendment policy information.
9. Contrary Law
As with many legal documents, bylaws typically end with a statement declaring that if any section of the document contradicts state law, it will be voided.
Don’t ignore your business’s corporate bylaws.
Bylaws are long, detailed, and a little intimidating—and important. But don’t run away from them. The information you put on file now might affect the future—and financial situation—of your business for years to come.
[Let Click&Inc help you with your corporate bylaws today!]