Corporate bylaws outline the operating rules and various methods by which a company will conduct business. Initial directors, typically those named in the articles of incorporation, prepare the bylaws. Every director must sign the bylaws as soon as they are prepared.
What are Corporate Bylaws?
According to the articles of incorporation, bylaws for a corporation are drafted by the board of directors, usually the shareholders of the corporation. After they are finalized, copies of the bylaws must be kept at the company's main location and updated as needed. They are similar to the operating agreement of an LLC and stipulate how the company is run.
What information should be included?
- Name of the corporation;
- Board of Directors;
- Certificates of Stock;
- Quorum and its Determination;
- Announcement of dates and times for annual meetings;
- Indemnification; and
- Others (officers, members, etc.).
What is a Quorum?
A quorum refers to the minimum number of directors or shareholders required for a meeting to be valid. Quorums usually consist of a majority of individuals or at least 50%.
Under California law (Corp. Code 602), a meeting cannot be held unless 1/3 of the shareholders are present.
Are Corporate Bylaws Required?
In the United States, thirty-one (31) states require corporate bylaws.
The 5 Steps for Creating Bylaws
A bylaw describes the rules for decision-making and the schedule for the corporation's annual meetings. Bylaws are created by the corporation's original incorporators.
1. Gathering Incorporators
Owners of the company or the initial incorporators will select the incoming leadership team. A majority vote or 2/3's vote is generally required for initial decisions in most states.
2. Selection of the initial board members and chairperson
Known as a board of directors, these individuals are primarily responsible for making business decisions. It's usually the majority shareholders who are put on the board, with a chairperson who runs the meetings. The board of directors and/or directors must be present at the annual meeting in a certain number (#) or percentage (%).
3. Create a set of rules for the entity
The initial board of directors can begin making rules for the organization once they have been appointed. These rules will include:
- Decision-making processes;
- Dates and locations of annual meetings;
- Percentage of shareholders required to make a decision;
- Dividends are paid when and how;
- Officers and members' responsibilities; and
- If any other decisions need to be made, they should be taken at the first meeting.
4. Compile the Corporate Bylaws
A majority of the shareholders should sign the bylaws and the notarization must be done using a Notary Acknowledgment.
5. Arrange meetings and make amendments
Following the creation of the corporation’s bylaws, the board of directors can get a Federal Employer Identification Number (EIN) from the Internal Revenue Service so that business activities can begin. Additionally, bank accounts can be opened, employees can be hired, corporate bylaws can be changed, and employees can be trained.
The Difference Between Nonprofit and For-Profit Corporations
- Registration and renewal fees are lower.
- After expenses, profits must support a "worthy cause" (see IRS).
- At the beginning of each year, individuals' salaries must be determined.
- Register at the state and federal levels.
- Volunteers are the majority of employees.
- Registration and renewal fees are higher.
- Shareholders receive profits after expenses
- Salaries can be adjusted whenever needed.
- Register at the state level only (EIN required by IRS).
- The employees are paid.
The following sections make up properly completed corporate bylaws. Therefore due diligence and careful consideration should be carried out.
(1) Entity Name. In the title, the full name of the corporation whose bylaws are discussed is required. In view of this document formally being associated with the Entity named here, the full legal name of the entity, as well as the formal status suffix, should be recorded.
(2) Corporation Name. The name of the Corporation and the state where this company was first formed should be confirmed in this paperwork.
IV. Annual Meeting
(3) Annual Meeting Demand. This paperwork should specify how many days should elapse after an overdue annual meeting notice has been properly submitted.
V. Special Meetings
(4) Formal Special Meeting Request. If the Corporate's statutes do not define who can call a special meeting, then the Corporate should do so here. All corporate parties with the authority to call special meetings are listed on a display for selection. If the Corporation's President or CEO has the authority to call special meetings, for instance, the first checkbox should be marked.
(5) Board Of Directors And Shareholders. Those on the Board of Directors or Shareholders of a Corporation may call for special meetings as long as the checkboxes corresponding to the vote are selected, and the minimum percentage of total Members (of Board of Directors or Shareholders) that can do so is recorded.
(6) Other Parties. Using the space provided, indicate whether and to what extent additional parties (e.g. employees) are entitled to call a special meeting, and mark the appropriate checkbox as appropriate.
(7) Meeting Arrangement. In order for this article to be completed, the Board of Directors will be given an official number of days in which they can set the date and place of a special meeting.
IV. Place Of Meetings
(8) Meeting Venues. Meeting options can be identified by creating a checklist. The desired checkbox allows the immediate definition of the two common options so that such meetings can be set up for the Corporation's headquarters (in person) or through a remote communication method approved by the Board of Directors. if an additional venue is requested, and the preferred venue has been approved, use the space available to report the meeting location directly into the Corporation, ensuring that the appropriate checkbox has been selected.
(9) Causing Dissolution. In order to dissolve this Entity, it must be possible for the Initiators of the action to do so. This document will set out how this can be done. Defining Corporate Parties (i.e. the Board of Directors or Shareholders) to make this decision and the number of Shareholders required to make such a decision by checking the appropriate box.
The Corporation can be dissolved by a Corporate Party not listed on this checklist, so select the final statement item and show which Corporate Parties can dissolve the Corporation. The company's statutes and/or reporting space should indicate any conditions that should be applied to the corporation.
VIII. Notice Of Meetings
(10) Notice Delivery Method. As soon as a specific meeting time and location is decided, the expected attendees must be notified. Meeting notices can be delivered by email, mail, fax, in-person, or by hand, or any other means you specify, according to a checklist of delivery methods. This document should establish the timeframe for the delivery method you choose to be completed with the successful delivery of the meeting notice no earlier than sixty days before the meeting, and no later than ten days before the meeting unless state law requires more notice.
(11) Required Attendees. It is also necessary to discuss who will attend the Corporation's annual or special meetings. If a percentage of the Board of Directors, Shareholders, or any other corporate parties should attend the meeting, check the appropriate box, and use the space provided to enter the exact percentage of Directors and/or Shareholders required. Please include a complete list of expected special or annual meeting attendees, as well as any criteria your entry must meet.
X. Actions Of The Corporation
(12) Action Requirement. It must be written in this document whether a meeting is required to decide upon Corporate actions or not when a corporation takes action in its business. The first checkbox will therefore indicate that only decisions made during meetings will be acceptable for the Corporation. Selecting the second checkbox permits action to be taken following a meeting as well as taking care of other matters that arise outside the meeting but relating to company matters and should be in writing.
XI. Corporate Seal
(13) Seal Status. The Corporation should report whether it intends to maintain and utilize a seal or not. This can be accomplished by selecting one of the checkboxes. Due to the fact that these statements will contradict each other in this article, only one may be adopted as a corporate bylaw.
XII. Execution Of Documents
(14) Signature Representative(s). An Authorized Signature Representative will generally be required to sign hard-copy transactions carried out by this Corporation. It is the Corporate Party that will work with outside entities, such as signing a binding contract. Identify all Corporate Parties that will be able to sign the contract via this paperwork. The final list item should be selected if the displayed list does not include a Party that must have this power of signature, and these other parties for whom this Corporation provides such power should be selected and provided with it as well.
(15) Director Or Officer Protection Status. The actions of corporate entities can have legal repercussions for directors and officers. By selecting one of the checkbox choices, these bylaws can be set to provide indemnification from blame and reasonable support from the Corporation or they can be set to prevent any such indemnification.
(16) Approved Amendment Authors. Bylaws can be amended by Parties defined within their content. Board of Directors, Shareholders, and/or other defined Corporate Parties must approve any changes to the paperwork before it is formally re-issued. The box that defines who may amend the by-laws before the next annual meeting must be checked (both here and in the corporate statutes).
XV. Stock Certificates
(17) Paper Certificate Status. The sale of physical stock certificates has been largely phased out in favor of more modern ways of verifying ownership of shares (such as the internet), but bylaws should nonetheless be in place for them. Whether this Corporation to prove ownership, the firm shall issue physical certificates or, if other, more reliable means (such as an electronic statement) can be used, the firm shall release the same information. For this status, one option can be selected from the fifteenth article.
(18) Required Director Count. The number of Directors that must make up the membership roster of this Corporation's Board of Directors must be recorded..
(19) Directorship Term. It should be determined how many years a Director may serve on the Board of Directors and then reported. A sitting member of the Board Of Directors may expect to serve for this length of time if no action is taken against them before another is naturally appointed.
(20) Execution Date. 'Authorized Signature Parties, elected by the members of the Corporation to represent it in this manner, will be able to verify the signature of the articles once the bylaws have been ratified (see article XII). The date when these bylaws will be considered formally adopted by the Corporation must be documented before this signature can be provided.
(21) Director Or Officer Signature. This Corporation's authorized signature party must sign the bylaws in order for them to become effective.
(22) Signature Date. When the bylaws are signed by the Signature Party, the current calendar date must be noted.
(23) Printed Name. Identify the individual who signs this document on behalf of the Corporation by printing his or her name on the document.
(24) Formal Title. During this sign-off process, the Signatory should acknowledge the official office they hold within the corporate entity bound by the terms of this document.