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Corporate bylaws are rules of a corporation that get established once a business incorporates. One of the first tasks of the board of directors of a new corporation is to establish corporate bylaws. Corporate bylaws essentially write out the operating rules and processes of the day-to-day of your business. Bylaws are most important for board of directors, helping them oversee the work and operation of the business.
The term “corporate bylaws” may sound like legal rigmarole that applies only to giant, multinational corporations—and not to your small business. In reality, however, any business that chooses the legal form of a corporation must create corporate bylaws.
Here’s how corporate bylaws work, and why you might need them for your small business.
Corporate bylaws are a legal document that explains how your business is organized and how it will be operated. Some of the reasons why corporate bylaws could be so important to a new business include:
One of the most common situations in which you’d need corporate bylaws is when a small business owner applies for a Small Business Administration loan. SBA loans are essentially the most desirable type of business financing, due to their low interest rates and government-backed guarantees. However, if you don’t have your corporate bylaws ready to include with your SBA loan application, you can seriously delay review and approval of your loan, causing financial difficulties for your business.
Corporate bylaws serve as a complementary document to your Articles of Incorporation. One is often confused for the other, in fact. However, the Articles of Incorporation is a very short document—typically only a page—with basic information like the date of incorporation, the number of existing and issued shares, the names of the Board of Directors, and the names of the members of the corporation. In contrast, the corporate bylaws provide details about how the corporation will operate on a daily basis, as well as how specific situations will be handled.
Unlike Articles of Incorporation, which must be filed with the state as part of the incorporation process, your bylaws are for internal use only—and you’re not required to file them with your state. However, that doesn’t mean they don’t matter or that you can neglect to write them. As mentioned above, attorneys, bankers, companies you’re doing business with, and your investors or stockholders may ask to see your bylaws, and when they do, you’d need to have the document ready.
Most states require corporations to create corporate bylaws, though the requirements for what to include vary. (For a list of which states do and do not require corporate bylaws, check out RocketLawyer’s handy table.) But in most cases, your bylaws should include the following information:
In most cases, your Board of Directors will adopt the corporate bylaws at its first board meeting, so putting together your bylaws should be part of starting your business. That makes sense, because your startup period is the time to think through all the issues that may arise as your business grows.
If creating corporate bylaws sounds stressful, don’t worry! You don’t have to be a legal expert or hire an attorney to help. There are plenty of resources that can help you create bylaws by providing easy-to-use templates and tools customized for your state’s requirements. Check out RocketLawyer, The Company Corporation and LegalZoom for a few.
By taking time to create well-thought-out corporate bylaws when you launch your business, you’ll save yourself lots of time, discussion, and stress later on.