In most states a corporation is required to have bylaws. The directors must adopt bylaws at the organizational meeting or in the actions in lieu of minutes of that meeting. There are no set criteria for the content of bylaws in many states however.
Can bylaws trump state law?
Bylaws may contain any provision for managing a business and regulating the affairs of that business as long as it is not inconsistent with state law or the articles of incorporation. Bylaws in most states can also be amended as long as the amendments are not inconsistent with its articles of incorporation or with the laws of the state. Thus, they do not trump the articles of incorporation or the law of the state. Bylaws are not filed with the state Secretary of State or the state Corporation Commission. The state Corporation Commission does not keep copies of them on file and cannot provide a copy to interested parties.
What do Bylaws do?
Rather, bylaws are the internal rules and regulations of a corporation. They create the structure of a company and help businesses operate effectively. They contain the rules and procedures governing how the board of directors operates. They cover the individual’s relationship as a Director, officer or member to the organization.
For example, bylaws may guide the corporation concerning how directors may vote regarding business issues, establish the regulation of the conduct of the association’s board of directors, and outline how a board of directors may be elected or removed. Well-drafted bylaws dictate how disputes are resolved. However, they tend to not address issues of the day-to-day activities of the organization. To operate smoothly and efficiently an organization’s bylaws should meet the specific needs of that organization and be in compliance with the state law governing the organization.
Among a number of other details, corporate bylaws generally contain:
- The corporation’s name, address, and headquarters
- The structure of the organization
- The duties and responsibilities of a corporation’s members
- Details about the board of directors
- Information about when and where directors’ and shareholders’ meetings will be held
- A list of committees
- Stock classes and the type of shares that the corporation issues
- Procedure for making amendments to Corporate Bylaws and Articles of Incorporation
Despite corporations not being required by some states to file their bylaws with the state’s Secretary of State or the Corporation Commission, they are still crucial to a business. Many organizations that are not corporations also have bylaws because they establish guidance and clarity for decision-makers within an organization and help prevent legal issues or claims against an organization. For example, they may help prevent claims about the validity of an organizations corporate operation. If a corporation is sued and a motion is made to pierce the corporate veil, having a copy of the bylaws on file can be used as one piece of evidence demonstrating that the corporation complied with state laws. Or for instance, if a corporation is audited by the IRS and questions are raised regarding whether the corporation is a facade designed to reduce tax liability rather than doing business as a legitimate corporation, producing bylaws may dismiss such concerns. In addition, they are often requested by:
- Lenders, when corporations are trying to obtain financing
- Banks, when corporations are opening business checking accounts
- Potential business partners or investors
- Attorneys and accountants