Should Your Corporation Adopt Bylaws?

Bylaws set forth the rules and procedures that govern the operation of your corporation, its officers, and directors. Unlike the Articles of Incorporation, Bylaws are not public records and typically do not have to be filed with any governmental entity. Bylaws will be adopted by your corporation's directors at their first board meeting or adopted by the Action of Incorporator and then adopted at the first board meeting.

Default Provisions

Each state has some form of a Business Corporation Act that governs the lawful operation of corporations and other business entities. If your Bylaws do not cover the basic requirement for operation and management of your corporation, by default, the statutes within your chosen state's Business Corporation Act will.

Function

Bylaws serve two basic functions:

• They provide a useful reference for officers, directors, and corporate counsels to verify that their acts comply with the Articles of Incorporation, the state's Business Corporation Act, and other state laws, rules, and regulations; and
• They provide permissible variances of the state's Business Corporation Act, or addition of items not covered in the act.

Reasons Your Corporation Should Adopt Bylaws:

• The outside world expects a corporation to have Bylaws; banks, credit companies, and the IRS expect a corporation to have Bylaws.
• The adoption of Bylaws indicates that your corporation takes its corporate responsibilities seriously.
• Bylaws provide broad and day-to-day guidance in running your corporation.
• When you adopt Bylaws you have addressed various key issues for the operation of your corporation.

Bylaws Provisions

Bylaw provisions generally fall into the following categories and address these matters:

• Corporate Offices.
  The address of the principal office of your corporation
• Shareholders.
  The location and time of annual and other shareholder meetings; the manner of giving notice or waiver of notice of shareholder meetings; quorum for voting; voting requirements for shareholders; date of determination of shareholders of record; shareholder action by written consent without a meeting; proxy requirements; appointment of inspectors of election to act at meeting; and adjournment
• Stock.
  Authorize shareholders of your corporation to have certificates of stock indicating ownership; procedures for lost, stolen, or destroyed stock certificates and issuance of new stock certificates; authorize Board of Directors to establish other regulations regarding the issuance, transfer, conversion, or registration of stock certificates
• Directors.
  The number of authorized directors on the Board of Directors and their qualifications; the election, resignation, and removal of directors; the time and place for regular and special meetings; notice of such meetings; telephone meetings of the Board of Directors; quorum required for vote; a list of officers; written action by directors in lieu of meetings; powers to the board to act on behalf of the corporation; and compensation of directors for serving on the board
• Committees.
  Empowers the Board of Directors to appoint committees of the board and grant those committees with powers to make, alter, and repeal rules for the conduct of the corporation's business
• Officers.
  The executive officers of the corporation, usually including a CEO, vice president, secretary, and treasurer or chief financial officer; the procedures for election, qualification, term of office, resignation, removal, and vacancies of the executive officers; grant powers to the officers; descriptions of the duties of the officers; and an indicated compensation for serving as officers of the corporation
• Indemnification.
  Indemnification of the corporation's directors, officers, employees, agents, and others; payment for expenses; other sources of payment for indemnification; amendment or repeal of indemnification; purchase of insurance
• Records and Reports.
  Housekeeping provisions regarding requirements and procedure for maintenance and inspection of the stock ledger, Bylaws, and other corporate records; inspection by directors; preparation and production of annual report to shareholders; and preparation of financial statements of the corporation;
• General Matters.
  The corporation's tax year; execution of corporate contracts and instruments; corporate seal; interested directors; governance of Articles of Incorporation if conflict between Articles and Bylaws; and severability of any Bylaw provision if specific Bylaw provision held invalid
• Amendments.
  Requirements for adoption, repeal, or amendment of Bylaws.

Some of the issues addressed in your corporation's Bylaws will also be included as resolutions in the Minutes of the First Meeting of the Board of Directors. See a sample Minutes of Meeting of the Board of Directors here.

To preview and purchase forms from AllBusiness.com, visit the Forms & Agreements section. If you would prefer to have some help, corporate service companies like LegalZoom.com can help you set up your corporation and prepare customized bylaws and minutes of the first meeting of your board of directors.