If an entrepreneur forms a corporation, they must draft a set of corporate bylaws.
But why? And what are corporate bylaws?
Let’s explore what goes into corporate bylaws and the role that both minutes and bylaws play in a corporation.
Before You Draft Your Corporate Bylaws
Files Articles of Incorporation
Before drafting corporate bylaws, entrepreneurs forming a corporation must file articles of incorporation. This application may be filed with the Secretary of State in the state where you plan to conduct business.
Articles of incorporation are like filing articles of organization for an LLC. The articles cover basic information about the business including:
- Entity type (for example, a for-profit business corporation or professional corporation)
- Entity name
- Business street address
- Filing party information including name, mailing address, city, state, and zip code
- Registered agent name and street address
- Character of business
- Total number of authorized shares
- Class and number of shares per class
- Other provisions
- Name, address, date, and signature of the incorporator(s)
Completed articles of incorporation are then submitted to the Secretary of State’s office along with a filing fee.
Upon approval of the corporation, incorporator(s) may begin appointing corporate directors.
Meet with the Board of Directors
Shortly thereafter, it will be time to hold the first meeting of the board of directors. It is during this meeting that the initial directors of the business will adopt corporate bylaws, set the fiscal year, and appoint corporate officers. This same meeting will also allow for time to authorize the issuance of shares of stock to the founders of the corporation, in exchange for assets.
What are Corporate Bylaws?
Corporate bylaws fall under the umbrella of internal business compliance. This type of compliance is a form of recordkeeping for incorporated businesses and the type of records kept varies depending on the company’s entity formation.
Corporate bylaws are the rules and regulations of the corporation. They are set, agreed upon, and adopted by the corporation’s founder or board of directors. Drafting corporate bylaws allows the corporation to maintain consistency in its operations. Thorough corporate bylaws may help avoid conflict and disputes and better communicate organizational rules in the corporation.
How Do Corporate Bylaws Work?
Corporate bylaws cover the following key details for managing a corporation:
- Rules for electing directors to the board
- How to organize meetings
- The rights and responsibilities of owners
- How to conduct annual meetings
- Instructions for adding or removing directors
Corporate bylaws are kept internally within the corporation. They are not submitted to the state. In fact, some states don’t require corporations to create bylaws at all.
However, much like drafting a written LLC operating agreement, it’s still recommended that corporations draft corporate bylaws. Preparing and updating bylaws regularly helps corporations remain consistent in operations. This protects the business from falling out of compliance and into bad standing with its state of incorporation.
What Are Corporate Minutes?
Corporate minutes are quite different from corporate bylaws. Minutes are notes recorded during meetings. A specific person will be appointed to take minutes, such as a personal assistant or secretary.
Taking minutes means paying close attention to detail about what is discussed and any decisions the business makes during said meetings. These minutes act as a written record for the corporation. Minutes may be reviewed afterward and stored with corporate bylaws.
How Corporate Minutes Work
Taking minutes requires following three rules:
- Minutes must be legible. You must be able to read minutes and understand what took place.
- Minutes must be taken in chronological order. You may not skip ahead or skip over any part of the meeting. The date must also be included when taking minutes, as these minutes will be referred to later.
- Important information is covered in minutes. This may include items such as budget discussion and performance feedback.
Minutes play a powerful role in corporations. If, for example, an attendee is unable to make it to the meeting they may refer to minutes as a point of reference. Minutes share existing initiatives with everyone and an understanding of upcoming plans within the corporation.
Are Corporate Minutes a Requirement?
Unlike corporate bylaws, which may be optional in some states, all corporations are required by law to keep and maintain corporate minutes.
Falling behind or failing to maintain corporate minutes can result in a corporation falling out of compliance and into bad standing with the state. The corporation may be fined penalty fees and even dissolved by the state if it remains in bad standing.
The good news, however, is that drafting and maintaining corporate bylaws and minutes is quite easy once you understand how to do it. Should you choose to incorporate as a corporation, follow these steps in creating written corporate bylaws and minutes to keep your business in compliance. When in doubt, you may always work with a trusted third-party professional, like our team at MyCorporation, for assistance with creating a corporate bylaws and minutes package.
Deborah Sweeney is the CEO of MyCorporation.com. MyCorporation is a leader in online legal filing services for entrepreneurs and businesses, providing start-up bundles that include corporation and LLC formation, registered agent, DBA, and trademark & copyright filing services. MyCorporation does all the work, making the business formation and maintenance quick and painless, so business owners can focus on what they do best. Follow her on Twitter @deborahsweeney and @mycorporation.