What Are Bylaws of a Corporation?

Company bylaws, also known as corporation’s bylaws, are a legal document that outlines fundamental rules and regulations governing the company’s daily operations. These rules and regulations articulate the procedures management should follow, such as in regards to election rules, ensuring the organization runs smoothly, consistently, and efficiently.

In many states, organizations must maintain bylaws. Because they are vital in a company’s organization, the board of directors and other governing bodies often outline them when an organization is founded. But unlike articles of incorporation, company bylaws aren’t public and need not be filed with the Secretary of State. However, lenders, investors, banks, and lawyers can request a corporation’s bylaws. 

In addition, what companies should include in their bylaws varies from state to state. For example, states like New York have no rules and regulations regarding what should be included in a company's bylaws, while other states, like Delaware, outline that a corporation’s bylaws must include specific information.

What Provisions Should You Include in Your Company’s Bylaws?

Corporate bylaws should contain the following components:

1. Statement of the Organization’s Purpose

Stating an organization’s purpose is vital, particularly for the board, because it outlines the path the organization should follow. In addition, it stipulates why the corporation was formed. Such a statement ensures that leadership changes don’t affect the nature of an organization’s operations because its mission and objectives are already specified. 

2. Board of Directors

Company bylaws must include information on the board of directors because this board is the company's governing body in regards to its powers and duties. That information should specify the number of years a board member can stay on the board and the number of board members required to form a quorum. If you have questions about bylaws for non-profit organizations, check out our latest article. 

3. Management Structure

Change in management is inevitable in every corporation, so corporate bylaws must define a company’s management structure. These rules and regulations outline the procedure for filling higher vacant positions, ensuring there’s no disruption in the company’s leadership.

4. Board and Shareholder Meetings

Company bylaws must stipulate when shareholder meetings should be held and how each shareholder or board member should be notified of these meetings. In addition, they should specify how often and where these meetings occur.

5. Amendment to Company Bylaws

As organizations grow and change, their bylaws should also evolve and change with them. So, company bylaws must contain information regarding how to amend them. Typically, company bylaws need a supermajority to modify the bylaws–either three-fourths or two-thirds of the voting members.

How Board Members Vote to Amend Company Bylaws

Any corporate bylaw amendments become effective after the board of directors adopts them. To vote to amend corporate bylaws:

• Hold a meeting with your organization’s board of directors–You can discuss bylaw revisions at a frequently scheduled meeting or call a special meeting. If you call for a special meeting, be sure to send a notice to all parties per your company’s existing bylaws.
• Check the organization’s current bylaws to determine who is eligible to vote for the amendment–Typically, all board members and shareholders can vote on corporate amendments. However, this may vary from corporation to corporation. Determine if you require a two-thirds majority, simple majority, or other minimum votes to pass the amendment. 
• Distribute copies of the intended amendments to all voting members–Ensure each member has enough time to review the proposal before the vote date.
• Hold another meeting to take each member’s vote–If the proposed changes are passed, draft a written resolution expounding the amendments. 
• Once the meeting adjourns, incorporate the amendments into your company’s official written bylaws.

Voting and Quorums at Shareholder Meetings

Company bylaws often require a quorum for voting at shareholder or board meetings. A quorum is usually reached if the shareholders represented or present at the meeting own more than 50% of the company's shares. Some state regulations allow approving resolutions without a quorum if all shareholders issue a written endorsement. Passing a resolution often requires a simple majority of shareholders' votes. A greater percentage of votes may be required for exceptional resolutions, such as dissolving the company or seeking a merger. 

Final Thoughts 

Company bylaws are vital legal documents that chart the course for the company’s future. Therefore, organizations should draft bylaws that comply with the laws of the state of incorporation. In addition, these rules and regulations must contain important information, such as the number of board members needed to form a quorum and how often and when board and shareholder meetings should be held.