chapter 2


Put simply, Corporate Bylaws are the internal rules of your organization. They create the structure of your company and help to make sure that it runs smoothly. These fundamental rules will guide how your business will operate so everyone—shareholders, executives, and employees—are on the same page. While corporate bylaws are specific to an S-Corp or C-Corp, an Operating Agreement serves a similar purpose for LLC's.

If you haven't incorporated your business, then creating rules of operation is not required, but it's certainly recommended. If you are still on the fence about the benefits of incorporating, certainly talk to us. We're happy to help!

If you've already established Articles of Incorporation or Articles of Organization, Corporate Bylaws or an LLC Operating Agreement may sound oddly familiar. Let's look at the basic differences between them:

Corporate Bylaws/LLC Operating Agreement Articles of Incorporation/Articles of Organization
Internal document: maintained at company's primary business locationPublic record: anyone can access it
Required by some states (if your business is incorporated)Required by all states (if your business is incorporated)
Specific information
i.e.: rules and regulations of the business
General information
i.e.: name and location of the business
No need to fileFiled with Secretary or Department of State
No costFiling fees vary from state to state
No set criteriaCertain information is mandatory, including legal name and location of the business, and purpose for organizing the corporation
No fee to amendFiling fee to amend, must file amended document with Secretary or Department of State

The complexity of your bylaws will largely depend on the size of your business, but the average corporation's bylaws will cover the following:

  • The corporation's name, address, and headquarters

  • The stock classes and the type of shares that the corporation issues

  • How many corporate officers and directors the corporation has

  • The procedure for holding shareholder and director meetings

  • The procedure for making amendments to Corporate Bylaws and Articles of Incorporation

  • The procedure for keeping Corporate Records, including preparing and inspecting the records

On the other hand, LLC Operating Agreements generally include:

  • The company's name, address and phone number

  • The names, roles and responsibilities of the members

  • The share of the business owned by each member

  • The procedure for managing the LLC, including the agreed-upon guidelines for holding meetings, taking votes and accounting

  • The procedure for changes in ownership, e.g. if a member wants to withdraw or if you decide to dissolve the company or sell it

Should I create an operating agreement / bylaws?

Short answer: Maybe.

Depending on your type of business, you may or may not need to establish corporate bylaws, but most states require them from corporations (both S-Corps and C-Corps). Here's a breakdown of the Corporate Bylaw requirements by state.

Similarly, there are five states that require LLC's to create an Operating Agreement. These are: Delaware, California, New York, Missouri, and Maine. To learn more about the rules for these states, please see the LLC Operating Agreement requirements by state.

If you're in an LLC, creating an operating agreement may not be required in your state, but it will help to protect your business. Your state already has a set of default rules that regulates all businesses, so by choosing and creating your own bylaws, you can override these state rules that may or may not be right for your business.

For example, let's say your LLC is owned by multiple people who invested a varying amount into the business. Many states require LLC owners to equally allocate profits and losses—regardless of individual investment. To avoid this default rule, your operating agreement should specify how you and your co-owners have agreed to split the amount.

Continue reading to learn more about other documents that are important to running your business.


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