A Beginner’s Guide to Understanding Corporate Bylaws

Did you know that there are more than thirty million small businesses in the United States? While not all of these businesses have corporate bylaws, many of them do. 

If you’re just starting a new business, you might be wondering what corporate bylaws actually are. And you might even be required by your state to have them.

So keep on reading and we’ll walk you through this confusing part of corporate law.

What Are Corporate Bylaws?

Corporate bylaws are a legal document that details the rules and regulations that govern a company’s daily operations. This document details the procedures that management needs to follow. 

The goal of corporate bylaws is to make sure that a company runs consistently, efficiently, and smoothly.

Many states require that companies have bylaws. However, bylaws aren’t public and don’t need to be filed with the Secretary of State. However, lenders and lawyers might request to see the bylaws. 

Information About the Board of Directors

Your corporate bylaws will probably have information about the board of directors. The bylaws should state how many directors there are and the qualifications and responsibilities of the directors. 

Bylaws can also go over the creation of committees and subcommittees. Common kinds of committees include nominating and executive committees.

Shareholder Information

Shareholders are people who own a stake in a company. Corporations should include information about shareholder meetings in the bylaws.

This information includes the order of business, the quorum required, how the company communicates with shareholders, and when the annual shareholder meeting is.

A company’s bylaws should also go over the process by which shareholders can call for special meetings. Sometimes, shareholders want to hold special meetings when an executive is not doing a good job.

Conflicts of Interest

Your company’s bylaws should also go over what to do in case there’s a conflict of interest. For example, your company might be thinking about acquiring another company. A member of your board of directors might also be involved with this other company.

Your rules should specify that conflicted members need to sit out of discussions related to these kinds of acquisitions.

Amendments

As a corporation grows and changes, the bylaws and operating agreements should also grow and change. Because of this, bylaws should also include information about how to amend them. 

Usually, bylaws need a supermajority to amend the bylaws. A supermajority is usually either three-fourths or two-thirds of voting members. 

The Importance of Understanding Corporate Bylaws

Hopefully, after reading the above article, you now have a better understanding of corporate bylaws. As we can see, corporate bylaws can help a company run smoothly and also grow. It’s important to have bylaws so that your company has clear rules and operates properly.

Are you looking for other helpful business articles like this one? If so then you should check out the rest of our site today for even more!