When you create a business, there are a number of different requirements you have to keep track of. And if you form a corporation, you will have a couple of other responsibilities added to your plate, like establishing bylaws. So, what are bylaws?
What are bylaws?
Bylaws are legal documents that outline the rules, regulations, and guidelines of your organization. In some cases, businesses file their bylaws along with their articles of incorporation when they form their company.
In most cases, the business’s or organization’s board of directors are responsible for establishing the bylaws.
The main goal of business bylaws is to protect the rights and list out the duties of the directors, CEO, stockholders, and committee members.
Your bylaws can help you run your business more smoothly. Bylaws can help with elections, nominations, and settling disputes between parties.
Company bylaws are most commonly associated with corporations. However, partnerships and nonprofit organizations can also have bylaws. Other types of organizations, such as societies and clubs, generally have bylaws in place, too.
Your organization’s bylaws aren’t set in stone after you create them. You can always revise or amend them if needed.
Each member, director, and officer should have a copy of the organization’s bylaws and be familiar with its contents.
Articles of incorporation vs. bylaws
Your bylaws and articles of incorporation go hand in hand. Articles of incorporation include details about your corporation, including the roles managers and stockholders will play in the corporation.
Articles of incorporation will likely include things like:
- Your business’s name
- Your business’s location
- The names and addresses of directors and officers
- A statement of your business’s purpose
- The number of stock shares your business can issue
Although articles of incorporation sound similar to bylaws, they are not one and the same. However, you do have to register with your state and create your bylaws after you form your corporation.
After you form your corporation, you must establish a board of directors. Your board of directors will then determine your small business bylaws.
When you start your corporation, you must file the articles of incorporation with your state. You don’t have to file your bylaws with the state unless your organization is applying for nonprofit status.
Keep both your bylaws and articles of incorporation in your records for safekeeping and in case of an audit.
Check out some additional ways articles of incorporation and bylaws differ below.
|Articles of Incorporation||Bylaws|
|Include general details about the corporation||Spell out detailed rules and procedures for the organization/business to follow|
|You must file your articles of incorporation with your state||In most states, you’re not required to file your bylaws|
|After your articles of incorporation are approved by the state, they become a public document||Bylaws are not typically accessible to the public and are mainly kept in your company’s records|
|You must hold a shareholders meeting to discuss articles of incorporation amendments||You have the freedom to amend your bylaws at any time|
Bylaws consist of a few different sections. Each organization’s bylaws are unique and depend on the needs of the organization. Although bylaws can vary business to business, here are some general sections you might include in your bylaws:
- Statement of purpose
- Process of amending bylaws
- Board of directors
- Conflicts of interest
Statement of purpose
This section typically details basic information about the organization, like its name and the purpose of the organization. It should provide answers to the following questions:
- Why are you in business?
- What is the purpose of your organization?
- How will you go about reaching your goals?
Process of amending bylaws
Every organization should include a section about amending bylaws. This section goes over the procedure on how to amend the organization’s bylaws and who can recommend amendments or revisions and vote on amendments.
Board of directors
Your board of directors is the governing body of your organization. This section should include qualifications to become a member of the board of directors, how vacancies are filled, length of terms, and responsibilities for each member.
If your organization has any committees, this section will outline how the committees were formed and the mission of each committee.
Conflict of interest
This section goes over what to do if a conflict of interest occurs. For example, if a director would benefit from an issue, they should not be able to vote on the matter. If they do, it may be considered a conflict of interest. A director should disclose this conflict immediately to be removed from voting.
This section discusses the schedule of regular meetings, including time and place. It also details attendance conditions as well as requirements for notifying the board, committees, or members. This section also specifies the quorum (number of directors needed to vote on issues).
This section specifies the different types of members, member voting rights, membership acceptance process, and the policy for removing members. If your organization does not have any members, include that information in this section.
Officers are the board members who have specific roles, such as President, Vice President, or Treasurer. This section outlines how officers are selected and removed, as well as their duties, powers, and term length. You should also specify the procedures for removing an officer or filling vacant positions.
Importance of bylaws
Your business’s bylaws spell out what your organization can and can’t do in a certain situation. Your bylaws are essentially a blueprint for how to run and manage your organization. Bylaws can be used to:
- Settle disputes
- Make decisions
- Keep things consistent
- Avoid conflict
- Communicate rules
- Educate new directors and officers
Because they include such important information about running your business/organization, you shouldn’t leave them on a shelf to collect dust or forget.
Your bylaws should contain current and accurate information. Revisit your bylaws regularly (e.g., once a year) to revise information and keep the document up-to-date.
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This article has been updated from its original publication date of January 30, 2015.
This is not intended as legal advice; for more information, please click here.