Corporate bylaws outline the basic rules and procedures of an organization. They are usually legally binding, so writing them is no simple task that should be undertaken without knowledge or care. Board members, officers, and shareholders must all work together to produce a straightforward document that serves their purposes and carries the weight of law whenever needed.
This guide will help you understand what information needs to go into corporate bylaws, including specifics such as who can vote on proposed amendments to the bylaws and how often specific meetings must occur.
It will also explain what nonprofit bylaws cover and why nonprofits need these rules outlined in a document. Finally, it will walk you through steps for creating your own set of bylaws for your group.
What are bylaws?
Bylaws are the written rules of an organization. The word “bylaws” is used both singularly and as a plural noun, but basically, it just means “the bylaws.” Corporate Bylaws refer to the set of principles that govern corporations.
This type of bylaw might dictate how often officers must meet or what percentage of membership need to vote to amend the corporation’s charter. Nonprofit bylaws typically dictate how meetings will run and voting procedures at these meetings.
Who needs bylaws?
All types of organizations usually have a written structure outlining each person’s expected duties and responsibilities within the group, including executives, committees, officers and directors, employees, etc. These groups usually also have one overarching set of statements that dictates how the group should function, and these are bylaws.
Some organizations may have written policies instead of, or in addition to, bylaws. Guidelines are usually less detailed than formal bylaws, so they are often easier to create and use. However, it’s not necessarily a requirement for organizations to have written rules other than their bylaws establishing who can vote on some issues and when meetings must be held.
When should bylaws be written?
Depending on the type of organization, bylaws are created when the group is first established or changed to reflect its partners’ current makeup and needs. Before starting any written bylaws for your organization, make sure that you know what types of powers governing entities have in your state.
For example, nonprofit corporations do not need a president in some states because all board partners are considered “directors.” Make sure that you include all necessary information before officially writing down rules for your group.
How do you write bylaws?
1) Gather examples of the bylaws of similar organizations for reference.
This will help you to tailor your company bylaws to your group. If similar organizations have a lot of written rules that don’t apply to the needs of your group, feel free to leave them out.
You’ll gain a better understanding of what information goes into corporate bylaws and what parts aren’t as crucial for nonprofits by reading this article.
2) Write the first draft of your bylaws.
Once you have the format down, take that draft to a lawyer. If you don’t have any existing bylaws, consider finding an attorney who has experience in drafting corporate bylaws if you’re starting a corporation or nonprofit bylaws if your group is nonprofit.
They should be able to make quick work of writing up your initial draft. Have them review it and make any necessary changes before filing it with the appropriate state office (usually the secretary of state).
3) Meet as a group to discuss the proposed bylaws.
You can make changes before filing if necessary. You will need to decide whether the bylaws are approved after they are approved at two meetings with a quorum or if they require approval from a majority of members without a meeting.
4) Complete and approve the final draft of your bylaws.
Once you have the final draft approved, file them with the appropriate state office. Make sure to keep an original and a copy of the bylaws filed with the state so that you can refer to them later.
5) Be sure copies are given to anyone who needs them.
If your group’s bylaws may be available online, you should also keep a copy at the office or on file with someone who has access to them. It is always wise to have copies distributed among several individuals in case one person leaves the organization.
It’s important to remember that most organizations’ bylaws are living documents – they change over time as needs and membership fluctuate.
Be sure to review them regularly for amendments or updates. You may even consider having annual reviews of your bylaws so that you can make any necessary changes ahead of time instead of dealing with them when problems arise down the road.
What Information Must Be Put Into Corporate Bylaws?
There are few significant elements that bylaws should include:
- directors (and their role and responsibilities)
- meetings (and the voting procedures to be followed at them)
1. Basic Corporate Information
The first part of your bylaws should contain all the basic information about your company, just as a resume would have
This section will list:
- The name of the corporation (and any abbreviations)
- The address of the registered office and the name and address of the registered agent at that location (usually, this is where legal documents can be served on you). If you do not have an office yet, then indicate that here. You can also include any additional addresses for notices to members or directors here if necessary.
- A brief statement saying who established it
- Any classifications of stock or membership (if applicable)
2. Board of Directors
- The number of directors, how they are appointed/elected (e.g., by the membership or board depending on the type of corporation), and their qualifications (if any).
- Include whether the board is classified (a term often used for corporations with multiple classes of stock that elects a separate member to represent each class) or non-classified.
Note that an organization whose bylaws provide for more than one classification of the director is required to have a different voting standard in elections per class – meaning that there is one voting standard for electing Class A Directors and another for electing Class B Directors.
If you have only one classification of director, this section does not need to be included in your bylaws.
- The title and responsibilities of all officers. If there are no officers, you do not need to include this section in your bylaws.
- Information on when elections for officers will take place (e.g. at the last meeting in December).
In organizations with multiple classes of directors, the term of office may be different for each class – meaning that Class A directorial terms end in one year while Class B Directorial terms end in two years.) This should be included here if applicable to your organization’s structure.
4. Shareholders and Membership
- Include information on how to become a shareholder (e.g. by purchasing shares) and any restrictions that may apply
- For organizations that have members, include the rights of the members and how they can participate in voting procedures (e.g. at general meetings)
Note: If you do not sell shares or offer membership, this part of your bylaws does not need to be included here. However, you should still keep track of who the shareholders are, as this is important for knowing who has control over certain decisions – such as dissolution or major changes in a corporate structure.
Also, note that there may be restrictions on transferring stock ownership share ownership and these should be stated in your bylaws if applicable. They will also determine how many votes an owner gets.
Identify any committees that the board may appoint to help run the company. Committees are groups of people entrusted with specific tasks within a corporation. Three types of committees are:
- Executive Committees
- Audit Committees
- Governance Committee (which oversees the performance of other committees).
Include how members are appointed or elected to these committees if applicable. Set out what role these committees have in decision making – whether they only serve as advisors to the board, or if they also have input into decisions made by the board.
For example, an audit committee performs annual audits before reporting their findings/recommendations to the board for approval. If your organization does not have any committees set up, you do not need to include this section in your bylaws.
This section should include the frequency of special meetings, which should be at least once a year. It could also include information on who can call a meeting and what notice they need to give to members or directors, who can participate in a meeting (e.g. only shareholder meetings), and whether motions have to be passed by a majority vote, two-thirds vote, etc
Note that it is not necessary to state an exact place of business meetings – this is specified when the meeting is called.
7. Conflicts of Interest
This section should contain that no director or officer of the company is allowed to act on behalf of the corporation if it would result in a conflict of interest. For example, you cannot vote against your own personal interests (e.g. voting not to merge with another company because you own stock in that other company).
8. Amendment Procedures
This section should contain the procedure for amending the bylaws. For example, a proposed amendment must be sent to shareholders in writing at least a month before a vote is taken.
The usual process of making an amendment involves getting it past two readings and then voting on it. When you get down to just one word, add parentheses with the number of the article and then add ‘remains as written.’
After that put your new wording or deletion inside. If you delete something, use ‘delete’ instead of ‘. Delete all’ so people know what you’re talking about. As stated above, some organizations require 2/3rd’s of the votes to pass an amendment, so make a note of that here if it applies.
This section should show what happens to assets after a company is dissolved and who is responsible for winding up the affairs of the corporation, which includes liquidating any remaining assets and distributing money from liquidation back to shareholders.
It also states how long the process takes (e.g. two months) and can include information on other things related to dissolution such as causes for dissolution, rights of dissenting shareholders, etc.
Note: This section will not be included if there is no plan for dissolving your organization. The remedies available for this situation are outlined below under ‘Remedies’.
This section should contain that the articles will end if any or all of the corporation is sold, dissolved, merged out of existence, etc. It also includes how to handle this situation (e.g. bylaws automatically become part of the new contract between old and new owners). Include what happens to shares belonging to people who are not successors.
Reasons You Might Change Your Bylaws
Sometimes circumstances change within your organization which means you need to change your existing bylaws. These reasons might include:
- A new director has joined the board
- A new committee is being added or an old one dropped
- You are now allowing members to have voting rights on organizational matters
- Your nonprofit has incorporated another organization, which means your bylaws are to be altered
What are Nonprofit Bylaws?
Nonprofit Bylaws are the internal rules that govern how a nonprofit operates. They include how often meetings are held, who can participate in them, and procedures for making decisions. They also include information on how the nonprofit is organized, what committees are in place, and generally outline basic governance processes.
The main purpose of nonprofit bylaws is to protect an established organization’s mission and its members/owners. Nonprofit Bylaws should always be followed when running a nonprofit. They define authority boundaries between different entities within the structure (e.g. board, committee, staff).
Legal Requirements for Nonprofit Bylaws
The most common reasons why nonprofits are required to make changes to their existing bylaws include:
- The incorporation laws in the location they operate have changed
- They are attempting to incorporate another organization under their own umbrella (in which case, bylaws must be altered)
- They are dissolving the nonprofit and giving remaining funds back to direct shareholders (in which case, dissolution procedures must be outlined in detail). These events often require a meeting of the board and/or members
Articles of Incorporation and Bylaws: What Goes Where?
Typically, Articles of Incorporation contain more basic information about the nonprofit, including its name, address, principal office location, year established, duration (e.g. ‘perpetual’), etc. It also includes things like the number of directors on the board and whether classes of stock can vote. Bylaws are intended to provide more detailed principles for day operations within the organization.
What Are Corporation Statutes?
State Corporation statutes outline legal requirements that must be met when forming a company (i.e. filing articles of incorporation) and ongoing requirements for maintaining a company (i.e. filing annual reports, conducting an annual meeting). In most states, they outline the minimum contents that must be included in Articles of Incorporation as well as limits on shares that can be issued by a corporation.
State statutes also outline what is required in order to dissolve a corporation and what obligations it incurs if dissolving. When dissolving a corporation, typically any assets not distributed are given to the state in which the business was incorporated or registered.
Usually, this includes things like its name, federal employer identification number, etc. If the corporation’s owners want to keep these assets when dissolving, then specific procedures must be followed when closing down operations.
What if bylaws are ignored or broken?
Most bylaws are not contracts, and as such, they do not confer any legal rights to those who sign them. However, if a contract between two parties contains terms that conflict with the nonprofit’s bylaws, then those conflicting terms will be set aside in favor of what is stated in the bylaws.
If you think that your organization may be breaking its own rules, it might be time for an internal review of its operations. Enforcement can come down to whether or not there is significant support behind the directors violating their own bylaws.
This support could manifest itself through board member elections or just general acceptance among members of the organization. If this is found, then there may be grounds for getting some form of external assistance (e.g. legal) for resolving such situations.
What Not to Include In Your Bylaws?
Some articles will not need to be included. The following information should not appear under the ‘articles’ section unless there is cause to include it:
- membership qualifications or requirements
- fees for processing transactions through the organization
- provisions for amendments
- dissolution procedures.
What is the Difference Between Bylaws and Covenants, Conditions, and Restrictions (CC&Rs)?
Bylaws are internal rules that govern how a nonprofit operates. Covenants, conditions, and restrictions are standards that are included with property deeds or agreements that define how a property can be used/enforced. A nonprofit will likely only have bylaws, no CC&Rs.
A corporation’s bylaws provide direction and/or rules for its operations. Small business does not need bylaws, but most publish them as part of their record-keeping.
State statutes may not necessarily be published, but their corporate records exist and contain information important to maintaining a company!
You can consult with a law firm in your state. They should be able to give legal advice on the law and what changes need to be included in your bylaws.