Corporate bylaws are sets of rules which govern the operations of a corporation. These rules are legally enforceable as contracts among the members of the corporation.
Typically, sets of corporate bylaws will define important matters including how the corporation will be operated as well as the leadership roles of corporate officers and board members.
The laws governing corporate bylaws vary widely by state. In most instances, corporate bylaws are mentioned in the laws of the state as part of the corporate formalities checklist that the business will be required to satisfy in order to register as a corporation within that state. It is important to note, however, that corporate bylaws, which are often referred to as bylaws, are essential parts of the efficient operation of any corporation.
These bylaws can help to prevent legal disputes and can also provide guidance in the event that a legal dispute does arise. Bylaws also establish written procedures for the operation of a business.
Who Can Draft Corporate Bylaws?
The owners of the corporation are permitted to to prepare the bylaws when the corporation is founded. It may be very helpful to work with an experienced business lawyer when drafting bylaws.
Although there are corporate bylaw templates available from many different sources, they may not necessarily apply to what the owners of the corporation want to start. A business owner should consult with an attorney to draft bylaws which apply to the type of business that they wish to establish.
If a business owner does not want to work with an attorney during the drafting portion, a business lawyer can also review bylaws which have already been prepared and provide legal advice regarding their implementation. A corporation’s bylaws become legally enforceable when the majority of the board of directors votes to adopt those bylaws.
What Should be Contained in the Corporate Bylaws?
State laws mandate the contents of corporate bylaws. It is important to note that the requirements will differ from company to company and from state to state.
However, corporate bylaws will typically contain the following information:
- Corporate officers, including what corporate officers the corporation will have;
- Responsibilities of corporate officers, including:
- what the responsibilities of each officer will be;
- how they are elected; and
- their term of office;
- Board of directors responsibilities, including the number of board members as well as:
- their responsibilities;
- how they are elected;
- their terms of office;
- their general powers; and
- how many must be present at a board meeting to establish a quorum;
- Extent of authority of the officers and directors;
- Identifying information such as:
- its name;
- principal place of business;
- designation of the corporation as private or public; and
- the term of its fiscal year;
- Stock, including the number, type and classes of stock shares that the corporation is authorized to issue. The bylaws may also specify restrictions on stock ownership or establish the right of first refusal, which enables a corporation to buy stock back from a departing shareholder;
- Shareholders, including information about shareholder meetings, such as:
- how shareholders should be notified of a meeting;
- shareholders’ voting rights; and
- procedures for voting by proxy,
- Annual meeting. The date, time and location the annual meeting will be held as well as the requirements for notifying shareholders. Corporations are required to have at least one annual meeting;
- Special meetings, including how to call a special meeting for a time and date different from a regular meeting; and
- Committees, including:
- whether the board of directors will have committees;
- the procedures for setting them up;
- the procedures for dissolving them; and
- the procedures for appointing and removing members.
If a business plans to sell stock or to accept money from investors in the future, it should have a strategy for the structure of its stock offerings. This strategy should be included in the bylaws.
In addition, the bylaws should specify what individuals qualify as stockholders as well as how stocks can be transferred between stock owners. In some states, there may be a default rule.
A default rule is a rule which applies if the corporation’s bylaws do not specify something different on the subject of that rule. For example, the default rule may provide that all profits are to be evenly distributed among the shareholders.
In contrast, the default rule may provide that legal responsibility for the actions of a company will be evenly divided among the shareholders. Company bylaws may be able to avoid these default rules if the founding owners have knowledge of the rules and draft them competently.
The laws of a state may determine the manner in which bylaws can be enforced as well as the consequences for violating those bylaws. It is important to remember, as noted previously, that bylaws may make provision for the enforcement of those laws which differ from the state provision.
This is one of the reasons why the founders of a corporation may benefit from consulting an experienced business lawyer when drafting the bylaws. An attorney will have knowledge regarding the laws of the state and how they relate to corporate bylaws.
An attorney would know when it may be advantageous for the corporation to include provisions which differ from the state law.
What are Non-profit Bylaws?
Non-profit bylaws provide instructions and guidelines for how a non-profit organization can conduct its affairs. These bylaws also provide guidance for the board of directors and management personnel of the non-profit organization.
The bylaws may serve as a reference through the entire duration of the existence of the non-profit organization and may help to avoid as well as remedy organizational conflicts. Non-profit bylaws should not contain any clauses or provisions which disagree with the non-profit organization’s articles of incorporation, state laws, or federal laws.
What Should be Included in Non-Profit Bylaws?
The bylaws of a non-profit organization should include basic information, such as:
- The mission or purpose of the organization;
- Issues related to the selection or election of directors;
- Guidelines for when, how, and in what manner the board is permitted to take action;
- Guidelines for when and how a board meeting can be called;
- Responsibilities, duties, and authority of each board member or officer;
- How directors and officers can be held liable for violations; and
- Reporting duties to and from the directors.
A non-profit organization’s bylaws may also include specific issues such as:
- The suspension or termination of various members;
- Classes of membership in the organization;
- What should occur in the event of a non-profit contract dispute; and
- The rights of individual members.
These provisions may be tailored to each individual non-profit organization. They should not, however, conflict with other organizational documents and policies.
What are Some Common Mistakes Connected With Non-profit Bylaws?
There are common mistakes which are associated with non-profit bylaws, which may include:
- Outdated or incorrect mission statements. It is important to ensure that the mission statements reflect the current goals and intentions of the organization;
- Unclear instructions regarding meeting votes and procedures;
- Failure to distinguish between duties of the director and duties of the other members;
- Inconsistencies with other organizational documents; and
- Conflicts with state law.
It is necessary to carefully plan when instituting an organization’s bylaws. These bylaws should be updated regularly in order to avoid legal conflicts.
Do I Need a Lawyer for Help With Non-Profit Bylaws?
It is essential to have the assistance of a business lawyer when drafting the bylaws of a non-profit organization. A lawyer can help with both the drafting of the bylaws and reviewing bylaws which are already written.
Your lawyer can advise you regarding whether your organization’s bylaws are clearly drafted. In addition, if a legal dispute arises, your lawyer can assist you with filing a lawsuit and represent you in court.