Make a plan for managing your corporation: Corporate Bylaws

If you're incorporating as a C-Corp or S-Corp, chances are you have to create corporate bylaws. Most states require you to memorialize your bylaws and, even in the states where there is no such requirement, having bylaws is a great idea. After all, corporate bylaws define your business' structure, roles, and specifies how your company will conduct its affairs.

Creating and following your own bylaws is also a key ingredient of corporate compliance.  Along with keeping meeting minutes and regularly filing taxes, following your bylaws allows you to create unique rules and keep your business debts and assets separate from your personal ones.

Check our chart below to find out if your state requires you to create bylaws for your corporation:

Keep in mind that you do not actually need to file these bylaws in any state. Simply create them, keep them with your records, and, by all means, follow them. 

 While the Articles of Incorporation define the basic structure of the corporation, the bylaws of a company, also known as the Corporate Bylaws, are used to further define this structure. The Corporate Bylaws can contain any provisions not inconsistent with state law or the Articles, relating to the business of the corporation, the conduct of its affairs, and the rights and powers of the shareholders, directors, officers and employees. 

Here are some of the provisions you may find in Corporate Bylaws, along with information to help you understand what is covered in each one.

Name of Corporation

The name of the corporation is included in this part of the bylaws template exactly as it appears in the Articles of Incorporation. 

Corporation Type and State of Incorporation/Organization

The type of corporation appears in this clause, such as a C corporation, an S corporation, a nonprofit corporation, or a professional corporation, based on your state’s incorporation laws. The state of incorporation or organization may also be included.

501(c)(3) Information (If applicable, include nonprofit requirements and purpose)

The Internal Revenue Code allows for the following types of organizations to classify as section 501(c)(3): Religious, Educational, Charitable, Scientific, Literary, Testing for Public Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals Organizations.

The purpose of the non-profit may be entered here, for example "raise awareness about a medical condition." 

Shareholder Meetings

Details regarding shareholder meetings are also included in the Corporate Bylaws, including annual and special meetings, location, quorum, and actions, which are further addressed below.

Annual Meetings

Corporate Bylaws often require an annual meeting be set for the purpose of electing directors and conducting other corporate business. Shareholders usually must be notified of the annual meetings ahead of time if the exact date is not already fixed in the bylaws. For example, the bylaws might specify that the annual meeting will be held at the corporation's principal place of business, at 2:00 p.m. on the second Tuesday of each March. 

Corporate Bylaws may also authorize shareholders who are unable or unwilling to attend the meeting to designate an agent ("proxy" or "proxy holder") to vote their shares on their behalf.   

Special Meetings

All other meetings are "special" meetings, which can be called by the directors or by the officers as specified in the bylaws, or by a majority of the shareholders. 

If a shareholder is unable or unwilling to attend the meeting, that shareholder can designate an agent ("proxy" or "proxy holder") to vote his or her shares on his or her behalf.   

Note: The term "proxy" also refers to the document which evidences the appointment and authority of the agent to vote for the shareholder.

Notice

The actions taken at a meeting are only valid if proper notice of such meeting was provided to all shareholders or waived (a) in writing or (b) by attendance. The Corporate Bylaws will typically detail notice requirements, such as that the notice must be in writing and must specify the date, time and place of the meeting. 

If the meeting is a special meeting, the notice must also describe the purpose of the meeting. For example, Delaware law requires that notice of most meetings be given between ten and sixty days prior to the meeting. There is a higher minimum for certain special meetings at which major issues will be decided. 

Notices must be sent to all shareholders of record at the address listed in the corporate books. Further, the bylaws should mention when the notices are deemed effective.  For example, notices may be deemed effective when deposited in the U.S. mail or through electronic methods, such as email with a read receipt acknowledgement. 

Place

The Corporate Bylaws will also include the place where shareholder meetings will occur. usually the specific address or location. If the meeting is occurring electronically, such as through video chat, then the electronic meeting mode may be specified. 

Quorum

At the shareholder meeting itself, the first order of business is to establish that there is a "quorum" – the minimum number of shares (usually 51%) are represented at the meeting so that official votes can be taken. In turn, in order for an action to be effective, it must receive the affirmative vote of more than 50% of the votes present (unless the percentage is altered by the Articles of Incorporation or bylaws in accordance with applicable state law).  

Informal Action

The bylaws of a company may also address whether any action required to be taken at a shareholders’ meeting may be taken without a meeting. To do so, the shareholders must typically consent in writing to the action taken while being signed by a majority of the shareholders entitled to vote on the action.

Directors

This provision in the Corporate Bylaws addresses the general powers of the directors. The corporation’s business and affairs are managed by the board of directors. The directors may adopt rules and regulations for the corporation, such as how to conduct meetings. Further, corporation’s directors have the authority to authorize changes in the corporation’s capital structure. Information about provisions specific to directors is given below.

Number of Directors

This provision includes the number of directors for your corporation, based on the laws of the state where your corporation is incorporated. For example, although some states other than Delaware require a minimum of three directors in for-profit corporations (unless there are fewer than three shareholders), most states, including Delaware, allow for a single director. 

Most states' 501(c)(3) non-profit corporation laws, however, require a minimum of three directors.

Election and Term of Office

This provision in the bylaws template addresses the election and term of office for the corporate directors.

For elections, the directors shall be elected at shareholder meetings (usually the annual meeting). Typically, each director shall serve a term of one year (or more if specified in the bylaws) or until a successor has been elected. The bylaws may specify a maximum term for directors.

If there will be more than one regular director (those elected by the shareholders), consider dividing the directors into two or three classes with terms of two or three years, respectively, so that one class of directors expires each year (after the initial shareholder's meeting). The use of this method provides continuity on the board because only one-half or one-third of the board is replaced at any one time.

Quorum

The requirements of a quorum at meetings is also usually addressed in the bylaws. At the board of directors meeting itself, the first order of business is to establish that there is a "quorum" – the minimum number of directors (usually 51%) are represented at the meeting so that official votes can be taken.  

Adverse Interest

When determining the existence of a quorum or for voting, the bylaws will often address the impact of a director’s adverse interest. For example, the bylaws may state that if a director discloses their adverse interest, then such adverse interest will not invalidate that director’s vote on a corporate matter.

Regular Meeting

The bylaws can also address the details about the regular meetings for the board of directors. For example, the bylaws may specify the time and place of regular meetings, further stating that no additional notice will be required other than the bylaws themselves.

Special Meeting

The details about any special meetings for the board of directors can also be set forth in the bylaws. These meetings may be called by the chairman of the board, the president, or the board of directors itself. The secretary shall give notice of these meetings to all directors, specifying the time, place, and purpose of the special meeting. The bylaws may also specify when and how the notice shall be delivered by the secretary, such as at least two days before the meeting via email.

Procedures

The procedures of the board of directors meetings can also be a part of the bylaws of the company. For example, the bylaws may address the necessity for a quorum, how a certain number of dissents impacts decision-making, how voting occurs (such as through written ballot, email, or other method), and how proxies are handled.

Informal Action

Some actions may not warrant waiting until the next board of directors meeting to address. The bylaws can specify whether any action required to be taken by the directors may be taken without a meeting. The bylaws can state that the directors must consent in writing to the action taken while being signed by a majority of the directors entitled to vote on the action.

Removal / Vacancies

The bylaws can address removals and vacancies in relation to the corporation’s board of directors. 

For removal of directors, the bylaws can specify how and when directors may be removed. For example, directors may be removed at any time by a majority vote of the shareholders. 

For vacancies on the board of directors, the bylaws can specify what causes a vacancy, (such as the death, removal, or resignation of any director), and then specify how and when that vacancy will be filled. For example, the vacancy may be filled by a majority vote of the directors then in office or by a majority vote of the shareholders.

Resignation

The Corporate Bylaws can explain how a director may resign their position. For example, the bylaws may require written notification to the corporation’s chairman of the board or president. Additionally, the bylaws can specify when the resignation becomes effective.

Committees

The creation of committees is also a topic that can be handled in the bylaws. For example, the bylaws may permit the board of directors to appoint some of its members to a committee, on a temporary or permanent basis. Further, the bylaws may designate the duties and responsibilities of any committees, specifying that the committee(s) will be subject to the direction of the board of directors.

Officers

The corporate officers are identified in the bylaws. The corporate directors appoint officers – the president, one or more vice presidents, the secretary, and the treasurer – to carry out the day-to-day tasks and implement the policies established by the directors. Below are some of the responsibilities typically taken on by officers. 

President / Chairman

The president typically serves as the chief executive officer of the corporation, presiding over all shareholder meetings and, in the absence of the chairman of the board, at the directors’ meetings. The president has general oversight and management of the corporation, designating certain functions and duties to other officers as necessary. The president also performs other duties assigned to them by the chairman of the board, the board of directors, or the bylaws.

The chairman of the board may be elected by the board of directors and presides at all directors’ meetings. Further, the chairman performs any other duties assigned by the board of directors or these bylaws.

Vice President

The vice president performs the duties assigned to them by the board of directors or the president. Additionally, in the absence or disability of the president, the vice president performs the president’s duties and otherwise assists that office in the discharge of its leadership duties. 

Secretary

The secretary keeps the minutes of all shareholder and director meetings, and all committee meetings, as required by the chairman of the board or the president. The secretary also has custody of the corporation’s seal and all corporate records and documents. Further, the secretary certifies the bylaws and performs any other duties assigned by the chairman of the board, the president, or the board of directors.

Treasurer / CFO

The treasurer is responsible for conducting the financial affairs of the organization as directed and authorized by the Board of Directors. The treasurer makes reports of the organization's finances as required, but no less often than at each meeting of the Board of Directors. Many states' laws require that corporations have CFO or treasurers, although they do not always require that the treasurer serve on the Board of Directors. 

Corporate Seal / Execution of Instruments

The Articles of Incorporation or the Corporate Bylaws may specify whether the corporation will have a "corporate seal." Most new corporations choose NOT to have a corporate seal in order to avoid the requirement that such a seal imprint all official corporate documents. For example, the seal can be misplaced, stolen or it may be inconvenient to obtain when it is otherwise needed.

Most states create a statutory presumption that any officer of the corporation enjoys the authority to execute (sign) any written document, including, for example, documents for the sale of real estate, unless the Articles of Incorporation or bylaws specifically provide otherwise.   

If it is desirable to restrict such authority to certain officers or officer combinations, the Articles of Incorporation or bylaws can include such a restriction, and, when filed in the county records, all relevant parties are deemed to have received constructive notice of the restriction. (Note that the bylaws may need to be recorded if they, rather than the Articles of Incorporation, contain such restrictions.) This option provides some security against unintended transactions by heedless officers.

Amendment to Bylaws

The bylaws can set out how they can be amended. While the bylaws may appear complete on the first draft, they may eventually need updates or changes. The bylaws should outline a process to make those changes (for example, the bylaws may be amended by the board or directors by a two-thirds majority vote at a special meeting). In general, it is a good idea to revise your bylaws template at least once every five years.

Indemnification

The bylaws can specify whether the corporation will indemnify (defend) the directors, officers, employees and agents from lawsuits brought against those individuals which arose out of the performance of their duties. 

Stock Certificates

The bylaws can state whether the corporation chooses to issue or not issue stock certificates. Because a stock certificate is not the stock itself but merely tangible evidence of ownership of the shares, certificates are not essential to owning stock. Closely-held corporations may feel that there is no need to incur the added expense of issuing certificates. In that case, the corporate stock register records will be relied upon to indicate the ownership of the outstanding stock. However, the corporation is generally required to issue certificates upon demand by a shareholder, and most corporations choose to issue certificates as a rule.

Dissolution

The process for corporate dissolution may be included in the bylaws. For example, two-thirds of the shareholders or board of directors may vote in favor of the dissolution of the corporation. Additionally, the bylaws may address how the corporation’s assets shall be distributed upon dissolution.

Certification

Typically, the secretary certifies the bylaws, stating that the bylaws as written have been approved by the board of directors on a specific date. The secretary can then sign the certification along with the date of their signature.

Copies, Distribution and Storage

The process and requirements for copies, distribution, and storage of the bylaws, the articles of incorporation, and other corporate records can be set forth in the bylaws. For example, shareholders may request copies of the Corporate Bylaws in writing or the board of directors may choose to distribute a copy of the bylaws to all shareholders of record annually or bi-annually. Also, the bylaws may describe how shareholders can access or inspect corporate records.  Further, the bylaws should address where corporate records are kept, which is usually at the corporation’s principal place of business. 

A typical set of bylaws will include the following topics, unless such topics have already been addressed in the Articles: 

• Fix the number of directors, and whether they will be separated into classes. 
• Specify the quorum and other voting requirements for the director's meetings. 
• Allow the directors to delegate power to a committee of directors. 
• Specify whether the directors -- or shareholders in a for profit corporation -- can take action by written consent without a meeting. 
• Deny the directors the ability to establish their own compensation. 
• Appoint the officers, describe their duties, specify whether an individual may hold multiple officer positions, and prescribe the method of appointing officers and filling vacancies. 
• Indemnify the directors against personal liability. 
• Restrict the transfer of stock to outside parties. 
• Designate the date, time and location of the annual meeting of the board and/or shareholders. 
• Specify the quorum and other voting requirements for the board and/or shareholders' meetings. 
• Specify whether the corporation will have a corporate seal. 
• Restrict the transfer of stock to outside parties (for profit corporations). 
• State whether the corporation will issue stock certificates (for profit corporations only).