When an entrepreneur forms a corporation, they have to draft a set of corporate bylaws. What are corporate bylaws and what purpose do they serve? What elements are required when drafting them? We will also explore the various roles of minutes and bylaws and why they are essential for a corporation.
What You Need to Know Before Drafting Corporate Bylaws
Before beginning to draft corporate bylaws, an entrepreneur must file articles of incorporation to form the corporation. The founder or owner files the articles with their state’s Secretary of State. This is usually your state of residence and the state in which you plan on conducting business. Filing the articles of incorporation is similar to filing articles for organizing an LLC. The articles cover all the most basic information about the business such as:
- The type of entity you are forming (professional corporation or a for-profit business)
- The name of the entity
- The street address the business uses
- Information of the filing party (name, address)
- The name and address of the registered agent
- Character of business
- The total number of authorized shares
- Class and number of shares per class
- Any other provisions
- Name, address, and signature of the incorporator(s)
Submit the completed articles of incorporation to the Secretary of State’s office along with the filing fee. Once the Secretary of State approves the corporation, the incorporator(s) appoints corporate directors.
Board of Director Meeting
Shortly after the official corporation has formed, the board of directors will hold their first meeting. During this initial meeting, the board of directors performs many essential tasks including:
- adopting corporate bylaws
- appointing corporate officers
- setting the fiscal year
- determining issuance of shares to founders in exchange for assets.
What are Corporate Bylaws?
A business needs corporate bylaws to be compliant. The type of records needed for compliance depends on the entity formation. Bylaws are part of the recordkeeping needed to remain compliant. Corporate bylaws state the rules and regulations of the corporation. The founder or the board of directors set, agree to, and adopt the bylaws. Corporations need consistent and standard operations, drafting bylaws helps maintain this consistency. Thorough corporate bylaws often avoid disputes and conflict. Their design better communicates the corporation’s organizational rules.
How Corporate Bylaws Work
The corporate bylaws cover the primary details pertaining to the management of the corporation. They include these types of details:
- Rules outlining the election of directors
- Meetings organizational structure
- Owners’ rights and responsibilities
- How annual meetings will be conducted
- Instructions for either removing or adding directors
Some states require corporations to create bylaws, but others do not. The corporation keeps and maintains its own bylaws internally. They are not submitted to or filed with the state. However, it is highly recommended that corporations draft bylaws because of their importance to internal operations. Think of the corporate bylaws as the LLC’s operating agreement. They protect the business from noncompliance and prevent bad standing with its state of incorporation.
Corporate Minutes – What are they?
Corporate minutes differ from the bylaws. Minutes are the notes recorded during business meetings. Corporations appoint one person to take minutes. This is usually a secretary or personal assistant. The person who takes minutes must pay close attention to discussion details and business decisions made during the meeting. Meeting minutes become a corporation’s written record. After they are compiled, minutes are reviewed and then stored with the corporate bylaws.
How do Corporate Minutes Work?
The rules for taking minutes include:
- They must be legible so that they can be read. The reader must be able to understand what took place during the meeting.
- Take notes in chronological order. Do not skip any parts of the meeting.
- Minutes must include the date for later reference.
- Minutes cover important information including items such as the budget, performance, and feedback.
Corporate minutes play a huge role in the corporation. For instance, when an attendee cannot make it to the meeting, they can refer to the minutes for what occurred. Minutes are useful for sharing existing initiatives as well as upcoming plans.
Are Corporate Minutes a Requirement?
Corporate bylaws are optional in some states, but states require corporations to keep corporate minutes. A corporation failing to maintain minutes can be in bad standing with the state since they lack compliance. States also assess monetary penalties for corporations out of compliance. The state has the option of dissolving corporations in bad standing.