Similar to an Operating Agreement or Articles of Incorporation, the Corporate Bylaws describe in detail the specific procedures for how your corporation needs to operate. Consider all of the various elements that need to be decided for your corporation, and agree with the shareholders, board of directors, and officers how the day-to-day work needs to be done.
In any corporation, the first tasks are to assign roles to split apart the work that needs to be performed. Use the corporate bylaws to define what each role’s rights and responsibilities are, and organize your company for success.
You’ll need to do all of the proper research and homework first, but this template will give you a head-start and a good framework. You should always consult a lawyer though before finalizing any contracts.
Corporate bylaws are similar to the day-to-day operating rules that are used in non-profit organizations, partnerships, or other organizations. You need to include a few specific sections in every set of bylaws, and the special mix of sections depends usually on State Law. One of the first things that any bylaws set forth is the state of operation of the corporation. Depending on which state or what is the address of the primary place of business of the corporation, the bylaws must contain specific provisions or are prohibited to contain other provisions.
When you are selecting the location for where to base your corporation, the specific laws, such as tax regulations, incentives, credits, or restrictions, must be strongly considered. Many corporations use tax incentives as an exclusive basis for where to locate their headquarters. Some states are actively creating incentives that are competitive, in an effort to bring corporations to grow their economies and bring jobs to their area. Different corporations are defined as under the jurisdiction of special laws and codes if their defined purpose qualifies as well.
For automotive manufacturers, for example, different regulations apply, which might be more advantageous than the regulations for restaurant chains. In the first page, and generally in the first part of any corporations’ bylaws, the first sections that are made are the Purposes of the Corporation and the Offices, including the Principal Place of Business and headquarters. These statements are important, as they can qualify the business for specific legal and tax benefits. They can be exclusive though, so don’t make any statements that restrict your business, if you are planning to do other types of business.
Much of the bylaws speaks about meetings. When you start talking about how changes occur in your corporation, you need to have meetings in general to make those changes. The initial bylaws and articles of formation set up the general structure of the company, but the meetings, complete with minutes and decisions on matters of the company, are what make the biggest changes in the company. That’s why the bylaws focus so heavily on the meetings. The bylaws say what you can and can’t do in a meeting, how often meetings are held, and what sort of rules there are to make decisions in meetings.
Most corporations will have an Annual Meeting, which is usually required by law and varies from state-to-state. During this Annual Meeting, many significant changes may occur, including the election of members of the board of directors, the appointment of the officers in the corporation, or the making of large changes. When the corporation elects a person to be the President, for example, if that is the procedure, they usually maintain their term throughout the year, until the next Annual Meeting. If the state jurisdiction requires there to be quarterly meetings as well, as a financial report to shareholders, they should be defined by the board of directors or listed in the bylaws.
A couple of other meeting types are also common, including special meetings, which can be called at other times, separately from when the Annual Meetings are called. These meetings might be to make emergency changes to the board of directors or to make course-corrections with corporate affairs that must be decided on by all voting members or shareholders. When this voting occurs, there is a percentage of the shareholders or directors that are required in order to make the vote pass. This percentage is called a quorum. If a vote occurs, but the group voting for or against does not make up a quorum, then the vote does not pass, and must wait for a larger group to make another vote.
Meetings aren’t the only way to get things done in a corporation. There are several exceptions that allow actions to be taken, even without a meeting. If shareholders or directors can’t make it to meetings, there are other ways for them to vote and carry on the official business of the corporation. For example, they can make waiver of absence, or vote by proxy.
By appointing a duly authorized representative to attend for them, shareholders can have someone else such as their attorney or agent represent them at a shareholders meeting or meeting of the board of directors. If you appoint someone to represent you, then the actions and votes that they make are your responsibility and carry the same weight as if you were there.
Some corporations also include contingencies that allow voting shareholders or directors to vote by a ballot, and in electronic form, or in writing on paper. Or, if shareholders don’t wish to hold a meeting to make a vote or to carry out a decision on some matter, they can skip the meeting altogether. Although it may take more time after the fact, this is one way to conduct business where time is of the essence. A Waiver of Notice can be given, which allows meetings to be conducted with short or no notice, if enough shareholders agree, and an agreement of non-meeting can be signed by shareholders, which allows votes and other actions to be taken all with just oral or written correspondence.
In the end, the secretary and other officers have the responsibility to record all of the corporation’s proceedings, and organize exactly who did what and when. Who’s responsible for each role is all up to your team, and when you customize this bylaws template, you will need to consider minute details about what roles need to perform which responsibilities. This is the place where you need to define what actions are allowed and prohibited, and how much power to distribute to the leaders of your organization.
A corporation is a flexible structure, and now is the time to make some decisions about how it should best serve your business. Now that you know it’s not all set in stone, it will be the responsibility of the board and yourself to lead it wisely and use this system to allow your business to grow to new heights.