There are several steps to follow when forming a corporation. Most new corporations are aware of the need to file their articles of incorporation with the Secretary of State, and they likely have some inkling of the necessity of establishing bylaws. However, many businesses don’t put as much into company bylaws as perhaps they should since those don’t need to be officially filed anywhere. However, they are crucial to maintaining your corporate status over the long term and come with many important benefits for the company.
What Are Bylaws?
Your company bylaws are essentially a map of how your business will be run. It establishes rules for who does what, when they do it, and how. As such, they cover many aspects of corporate governance, including:
- The powers and rights of directors, officers, and shareholders
- Responsibilities of the various corporate offices in the company
- Size and roles of the board of directors
- The way directors are chosen
- Who may call meetings
- How often board or shareholder meetings are to be held
- Management of liabilities
- Reporting standards and procedures
- Rules governing the amendment of bylaws
There are many other aspects that should be covered as well, and the way they’re handled will ultimately depend on the size, industry, and structure of the corporation. When they are structured properly, corporate bylaws afford many benefits, some of which we’ll go over below.
Maintaining Corporate Status
Once you’ve formed up as a corporation, authorities will continue monitoring your business to make sure it actually functions the way it should. Some items they’ll look for include:
- Consistency of shareholder meetings
- Financial reporting practices
- Adherence with industry standards concerning governance
- How well your company is funded by you and your partners
Company bylaws will establish how these are to be carried out and will help make sure you follow all the necessary rules. This means you will be consistently compliant with the standards and regulations that govern how your business should be run to qualify as a corporation.
Having bylaws on file is also vital to your interactions with investors, other corporations, and potential partners. They outline the way you handle your business governance, and as such, they allow others to see just how you maintain your corporate status, thereby assuring others of your stability. For instance, many investors will only invest in a company that has a well established corporate status. If it looks like you won’t be able to maintain that status (such as if you have no guidelines in place for doing so), then they will be less likely to work with you.
One final reason corporate bylaws are so important is they give you a clear outline for compliance with federal and state regulations. There are many laws in place that govern how financial practices and reporting should be carried out, how information is handled, and so forth. Having a clear-cut set of rules is vital to ensuring adherence to these standards and preventing legal entanglements later on.
Drafting Company Bylaws
The process of creating corporate bylaws is extremely complex, and there are many legal aspects you’ll need to consider. A corporate lawyer, such as us at Hart David Carson LLP, can assist you through the incorporation process.