One of the most important steps in forming a corporation is creating your corporate bylaws. Think of them as your corporation's constitution.
Corporate bylaws are usually written after you've filed your articles of incorporation. Most states require you to create bylaws, but even if your state does not, it is good business practice to have them so that you can create structure and procedures to follow.
Items in corporate bylaws
Your corporate bylaws can be as brief or as expansive as you wish. Following are the items normally included:
- The corporate purpose
- Basic details about the corporation, such as address and location of the headquarters
- The procedure for amending corporate bylaws and articles of incorporation
- The names of the officers and directors of the corporation, as well as the number of board members
- How officers and directors are selected and, if necessary, removed
- A requirement that the directors disclose any conflicts of interest they may have
- Indemnification of directors and officers from liability for the corporation
- The procedure for keeping your corporate records
- The procedure for resolving internal disputes, such as those between a board member and an executive
- Dates and procedures for the annual meeting
- Your company's requirements for a quorum for voting purposes
- The rules for voting proxies
- How your corporation issues stock, as well as the classes of stock and number of each class
- The responsibilities that each officer is required to handle
Making corporate bylaws official
Once your bylaws have been written, they must be voted on by the corporation's board. Upon approval, the bylaws become official and binding on your corporation. If your state requires bylaws, you must then file them with the state Secretary of State's office, or the agency in your state that manages corporations. Make sure each board member and officer receives the bylaws so they can become familiar with them.
Using your bylaws
It's important to remember that your bylaws contain the guidelines your corporation must follow as it operates. If there is ever a question about a process or procedure, check your bylaws for the answer. You may also need to disclose your bylaws to potential creditors or investors, as well as banks and insurers.
Amending your bylaws
If at some point you find that you need to amend your corporation's bylaws, check the bylaws for the procedure to do so. Most bylaws with amendment procedures require calling a meeting of the board of directors and holding a vote on the amendment. The bylaws should state how many votes are needed, but a majority is generally the rule. If the amendment passes, you must then change the bylaws to reflect the new information and, if required by your state, file the amended bylaws with the appropriate state agency.
Your corporation's bylaws are the roadmap for how your corporation does business. Making sure they are written clearly and thoroughly can help your corporation avoid any bumps in the road.
Find out more about corporate bylaws