What are bylaws?

The bylaws of a company are the internal rules that govern how a business is run. They’re set out in a formal written document adopted by a corporation’s board of directors and summarize important procedures related to decision-making and voting. This helps ensure that even as officers and directors come and go from the company, there’s a consistent process and agreed-upon procedures.

Bylaws relate to decisions at a board level and are different from the guidelines in employee handbooks that apply to day-to-day business.

What is the purpose of corporate bylaws?

A corporation is a legal entity that’s distinct from its owners. The purpose of corporate bylaws is to establish an internal decision-making structure and clarify the relationships between key stakeholders in a company. These parties include:

• Shareholders who own the corporation
• Directors responsible for the overall direction of the company
• Officers who implement policy and run the day-to-day business

By creating bylaws, you’re helping to:

• Ensure everyone understands and operates under the same rules
• Provide transparency in how the business is run
• Resolve disputes, both internally and in a court of law

Legal requirement for corporate bylaws

Corporations are created at a state level when you file articles of incorporation with the appropriate agency. In some states, it’s a legal requirement for a corporation to have bylaws, but even if you aren’t required by law to create them, it’s good practice to have them in place.

Many small businesses may have a simple corporate structure during the startup phase, where the owners are also the directors and officers. Regardless of the size of your company when you launch, bylaws are useful for guiding growth over time, especially if you hope to attract capital through lenders and investors.

How to create corporate bylaws

Bylaws are created by the owners of a company, usually during the incorporation process. Here are five steps to follow.

1. Check state requirements

The first step in creating bylaws is to see if you’re legally required to do so by your state. If so, there may be specific requirements about what your bylaws should include. Your state agency may also have a template or outline to help you create your bylaws.

2. Consult a lawyer

Many entrepreneurs use a lawyer when setting up a corporation to ensure compliance with legal requirements. In addition to handling documents such as the articles of incorporation and shareholder agreements, a lawyer can help draft your bylaws.

3. Write the bylaws

The owners of the company should agree on the structure of the company and have all necessary information available before beginning to draft the document. See below for a detailed list of components to include in your bylaws.

4. Adopt the bylaws

The first meeting of the company’s board of directors is usually held to approve the articles of incorporation and bylaws. The bylaws are in effect once they’ve been formally passed and can be amended over time by the board to meet the changing needs of the corporation.

5. Place the bylaws in your corporate records

Once your bylaws have been approved by the directors, they should be kept with your registered agent as part of your corporate records. They don’t need to be filed with your state agency but should be available if required by lenders, investors and the IRS.

What to include in corporate bylaws

What are bylaws supposed to include? Here are some of the issues commonly addressed in corporate bylaws.

Name and location of the company

Most bylaws begin with a short section that includes the name of the company, including DBA if applicable, and the location of the principal place of business.

Purpose of the company

It’s helpful to have a short mission statement at the beginning of the bylaws confirming the overall vision of the company. This can be useful for focusing discussions about growth or expansion strategies.

Structure of the board

This section outlines the organization of the board of directors, including:

• The number of directors
• How and when directors are elected
• How directors are removed
• How vacancies are filled
• Qualifications of directors
• Conflict of interest rules
• Term length
• Compensation, if any

Procedures for conducting meetings

The bylaws of a company typically outline rules governing meetings of shareholders and directors, including:

• How often regular meetings are held
• When special meetings may be called
• How and when notices of meetings are issued
• Who may chair the meetings in the absence of the chairperson
• Quorums
• Policies and procedures for voting
• Votes needed to pass a resolution
• Proxies
• Actions that can be taken without a meeting; for example, by written consent

Committee appointments

From time to time, a board may want to form a committee to make recommendations on certain topics. You may want your bylaws to indicate how committees are formed and appointments made.

Guidelines for selecting officers

Corporations usually have executive officers who oversee the daily implementation of policies. Typical titles include chief executive officer, chief financial officer and chief operating officer. The bylaws of a company can indicate:

• Titles of officers
• Selection process
• Roles and responsibilities
• Reporting requirements

Information on shares and dividends

Depending on your corporation’s size and structure, you can also include information on the sale of shares and issuing of dividends. These subjects may also be addressed in shareholder agreements.

Other provisions

Your bylaws can include other provisions as necessary, such as:

• Signing authority for checks, contracts, leases and loans
• Procedures for amending bylaws

How to organize corporate bylaws

What are bylaws like on paper? Once you’ve decided on the information to include in your bylaws, you need to formalize them in a document.

Most bylaws are organized by articles and sections and numbered so you can quickly refer to the relevant information.

• Articles are a broad topic; for example, you may have separate articles about directors and officers
• Sections are specific topics within the broader article. In an article about directors, you could have sections about the number of directors, terms and compensation.

Sometimes it’s helpful to see actual examples of bylaws. Publicly traded companies such as Apple and Nike make their bylaws available for anyone to view.

Corporate bylaws FAQs

What is the difference between a bylaw and a law?

Laws are established by federal, state and local governments and are enforceable by legal authority. Sometimes, cities or towns may refer to their laws as bylaws.

Bylaws are a system of rules adopted by a corporation, organization or community to govern and regulate its members. Your business may have corporate bylaws for its internal affairs but must also follow government laws regarding taxes, permits and licenses.

Are bylaws and articles of incorporation the same thing?

No. Articles of incorporation are documents that you file with your state agency to have your business legally recognized as a corporation. Your corporate bylaws are internal documents used to guide your business operations.

Are corporate bylaws public?

Privately held companies don’t have to file their corporate bylaws with the state or make them public, although they may be asked to provide them to potential investors and lenders. Companies that are publicly traded on the stock exchange must make their bylaws part of public record.