If you own a business, there are so many requirements that you will be expected to keep track of. In case you are dealing with a corporation, there are so many responsibilities that you have added to your plate such as establishing bylaws. The question here that you could be asking is what are bylaws?
What Are Bylaws?
Bylaws are typically legal documents that outline the guidelines, regulations, and rules of the organization. Businesses mostly file their bylaws alongside the articles of incorporation while forming the company.
In most cases, the board of directors of the organization or business is responsible for the establishment of the bylaws. The primary objective of bylaws is to protect the rights of the business and state the duties of the committee members, stockholders, CEO, and directors.
The bylaws help business owners to run the enterprise smoothly. The bylaws can assist with dispute settlement between parties, nominations, and elections.
In most cases, the bylaws of the company are associated with corporations. However, nonprofits and partnerships can also form bylaws. Other forms of corporations, like clubs and societies, also tend to operate with bylaws. By now, you understand what we are bylaws and their role in the business.
The bylaws of the business are not set in stone once you create them. These are things that you can always amend or revise if there is a need.
Every officer, director, and member should have a copy of the bylaws of the organization. All people should also be familiar with the content of this document. The starting point is to understand we are bylaws.
What Are Bylaws vs. Articles Of Incorporation?
Both the articles of incorporation and bylaws of an organization go hand in hand. Articles of incorporation comprise the various details about your organization. This includes the roles that the stockholders and managers have to play in the running of the corporation.
Some of the things that are includes in the articles of incorporation are:
- The name of the business
- The location of the business
- The addresses and names of officers and directors
- The stock share number that your company can issue
Even though laws and articles of incorporation seem to be one and the same; they are two very different things. After forming your corporation, you have to register with the state government in order to create the bylaws.
After forming the organization, establishing the board of directors comes top on the priority list. These are the people who will determine the bylaws for your small business. Therefore, you need to train them on what are bylaws and how to make them.
While starting your corporation, you should file the articles of incorporation with the state. However, there is no need to file the bylaws with the state government unless the organization is applying for the status of nonprofit.
Maintain both the articles of incorporation and your bylaws in your records for safety because you may need them during the audit. Here are some of the additional differences between bylaws and articles of incorporation. It will give you a better understanding of what are bylaws.
Components Of Bylaws
There are different sections that make up the bylaws of an organization. The bylaws of every organization are unique and typically depend on the unique needs of the corporation. Even though bylaws tend to vary from one business to another, some of the sections that should not miss out on in the bylaws include.
- Conflicts of interest
- Board of directors
- Process of amending the bylaws
- Statement of purpose
Statement Of Purpose
In this section, you will basically find details on the basic information about your corporation like the name of the organization and its purpose. It has to provide answers to the questions below:
- Why are you in business
- What is the purpose of your organization
- How will you reach the goals of your business
Process Of Bylaws Amendment
As an organization, you have to include a section on how to amend your bylaws. The section explains the procedure of amending the bylaws of your organization. You may recommend revisions or amendments and then vote on them.
Board Of Directors
The board of directors is typically the governing body of the organization. The section should have the qualification to get to the board of directors as a member, filling of vacancies, responsibilities of every member, and the length of terms.
If you have many committees in your organization, the section will explain how you formed the committees and the function of each of them.
Conflict Of Interest
This section explains what you will do in case a conflict of interest takes place. For instance, if there is a possibility of a director benefiting from an issue, he should be exempted from voting on the matter. If they do so, it can be considered to be a conflict of interest. The director has to disclose such conflict of interest in advance so that he can be removed from the voting process.
The section should discuss the schedule of regular meetings including place and time. It should also detail the attendance conditions and also the requirements to notify members, committees, and boards. The section should also specify the quorum or number of directors who are required to vote on various issues.
In this section, you specify the various types of members, the membership acceptance process, member voting rights, and the policy of removing members. In case your organization doesn’t have members, that information should be included in this section.
Officers are comprised of board members who have particular roles like the president, Treasurer, Vice President, etc. The section outlines how the organization selects and removes members together with their term length, powers, and duties. It should also specify the procedures of filling vacant positions or removing an officer.
Importance Of Bylaws
Now that you know what are by laws, it is also important to understand their importance. These bylaws spell out what the corporation can do or cannot do under certain conditions. These bylaws are basically a blueprint on how to manage and run the organization. Bylaws can be used to:
- Educate new officers and directors
- Communicate rules
- Avoid conflict
- Keep things consistent
- Make decisions
- Settle disputes
Bylaws include important information on how to run your business or organization. Therefore, you should not forget about them or leave them on the shelve to accumulate dust.
These bylaws should contain accurate and current information. Revit them regularly to revise the information and keep this document up-to-date. With all this information, you now understand what are bylaws and how to create and use them in your business.