Bylaws are the rules and guidelines by which a company and its members must operate.
When the business is first being formed, bylaws are established by the board of directors in a process called “incorporation.”
Having a written document detailing the bylaws, enables organizations to effectively deal with new issues and situations that may occur. These guide the actions of the board of directors, thereby saving time when dealing with complications or disagreements.
Furthermore, in other contexts, the term bylaw can refer to the rules put in place by a society to regulate its citizens. However, this article will focus only on the role of bylaws within organizations.
What Should I Include in the Bylaws?
Bylaws cover a variety of different issues. These can vary depending on the organization but they should usually include most of the following:
- Name and location of the organization
- Mission or purpose statement
- Board structure, roles, elections, terms, compensation, and size
- Chief executive roles
- Rules for shareholders, directors, and corporate officers
- Guidelines for internal and shareholder meetings
- Duties of managers and executives
- Bylaw amendment rules
- Membership guidelines, fees, requirements, and rights
- Rules for organization dissolution
When are Bylaws Used?
Not all organizations require bylaws. Their purpose varies from company to company. For example, enterprises that provide a direct service don’t always have bylaws that concern the business in its entirety. On the other hand, they may have bylaws pertaining to the board’s power rather than that of the directors.
Corporate Bylaws Versus Nonprofit Bylaws
Nonprofits differ in their bylaws when compared to corporations. Just like corporate bylaws describe the guidelines that a corporation must follow, bylaws also regulate the actions of a nonprofit, and they are necessary as a legal document when becoming incorporated within a state.
Please note that different states have varying statutes relating to bylaws. This means that it is necessary to consult your Secretary of State office or state attorney general’s office to determine your state's bylaw regulations.
It is not necessary for a nonprofit to become incorporated, but there are a number of additional advantages to doing so. These include but are not limited to:
- Limited personal liability
- Tax exemptions
- Employee benefits
- Right to exist in perpetuity
- Access to grants
What is the Difference Between Bylaws and Articles of Incorporation?
While bylaws dictate a company’s internal governance, the articles of incorporation are the charter that registers the organization within the state it will reside.
In some states, they are also known as articles of association, certificate of formation, or articles of formation.
As articles of incorporation are the legal document that creates the organization within a state, there is information that is generally necessary to include:
- Name of the founder
- Founding date
- Corporation name
- Business location
- Business purpose
- Names and addresses of founding directors and registered agents
- Signatures of directors and founders
- Authorized corporation capital
- Type of corporate structure
How Do I Write Bylaws for My Business?
When writing the bylaws for your business, it’s important to determine a process of creation and approval.
Typically, the bylaws are approved by the board of directors. Before the writer starts creating the bylaws, the board should meet to prepare an outline.
Depending on the complexity of the bylaws, one or more people will have to be entrusted to write the first draft. These can be members of the board, corporate directors, or a committee of different people. A lawyer or attorney can also be consulted.