As I mentioned in a previous article, your company bylaws are one of the few essential pieces of paperwork that you should have in your files. No one is going to check that you have it unless you end up growing beyond a single-person company or end up in some sort of trouble where you need it, but nevertheless it’s good to have. I’m going to link to a free template at the bottom of this article too so your excuses for not having it are mostly nullified. Just download it and file it away until you need it.
What are Bylaws? Corporate bylaws are the rules and regulations that govern the internal operations of a corporation. They are typically created when a corporation is formed and outline the procedures and guidelines for various aspects of the corporation’s operations. It’s essentially your rules and framework for operating at a very high level.
When I started my first company back in the 1990’s very little was online in the way of corporation information. Since I lived in the state capitol, I drove downtown to the Secretary of State’s office and requested the paperwork in person, typed it up on my father’s old typewriter and submitted it in paper form the next day. That was my first Articles of Incorporation.
I never wrote up company bylaws and honestly didn’t know I needed them. I had no idea if my company would grow beyond myself at the time and didn’t know that I might someday need some structure and proof of separation between personal liability and corporate liability. It turns out I didn’t need them for that company, but I’ve cobbled them together for every company since and it’s nice to have just for the peace of mind.
What should your bylaws contain? It’s quite a bit actually but don’t let this article be a burden. Remember I’ve already done the work of putting together a generic one for you and placed a link at the bottom. Let’s go through the contents now.
Name, Location and Fiscal Year
Obviously you’ll need to have your company name in the By-Laws. That’s kind of a given but needed to be mentioned just in case someone out there figured out a way to write them without it. People do funny things sometimes.
In addition to your name you’ll need to include the location of your primary offices where you receive mail and your principal place of business if different. It’s also a good idea to select your fiscal year and decide what it would take to dissolve your corporation if you don’t want to keep it going anymore.
Statement of Purpose
When company founders include a statement of the company’s purpose in the corporate bylaws, current and future corporate managers, investors, and partners can better understand why the company was founded and assess whether business opportunities align with the stated purpose. For a solopreneur just starting out you may not know exactly what you’re going to be doing in 5 years though, so how specific do you need to be?
It turns out that you don’t need to be specific at all. In fact, you can be so generic that CA literally has a canned generic statement you can use:
The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code.
– CA Corporate Code 202(b)(1)(A)
However, your Statement of Purpose doesn’t need to be generic if you don’t want it to be and should in fact change and grow with your company as you create your own purpose and corporate culture. Many people refer to this as your company’s Vision Statement. A few questions that might help you to formulate your own statement are:
- Why was this company incorporated?
- How does it set itself apart from competitors?
- Who are its primary customers?
- How does the company plan to serve them?
If you’re forming a nonprofit corporation it’s particularly good to have a specific statement as opposed to the generic one, as it helps the IRS and other government agencies determine whether the company qualifies for special tax-exempt status such as a 501(c)(3) or 501(c)(4) corporation.
The Board of Directors
The board of directors is the primary governing body of the corporation, and every corporation must have one. The bylaws should specify:
- The number of directors or a maximum or minimum number of directors
- Their duties
- The length of their terms
- How vacancies are filled; for instance, whether they can be filled by the board, members, or shareholders
There is always at least one director and the head of the board is typically called the “chair”. I am the Chairman of the Board of Directors for my company. Sounds pretty official doesn’t it? The board of directors typically sets the direction of the company and the company officers execute on that direction.
Officer Information
The board of directors selects officers to manage the daily operations of the company. Most corporations will have a chief executive officer, a chief financial officer and a secretary, and many will have a chief operations officer, chief information officer or others. I’m sure you’ve seen the acronyms for these before: CEO, CFO, COO and CIO. There are plenty of other acronyms and officers and you can even make up your own if you wish, like “Chief Evangelist”, “Chief Knowledge Officer” and “Chief Storyteller”, all real positions at companies today.
You’ll want to list out the officers your company has, their hierarchy and how they are chosen/elected as well as their responsibilities. If one of the positions becomes vacant for any reason you’ll also want to determine how a replacement is chosen. Some bylaws also detail salaries but I don’t think that’s necessary in a small company.
Meetings of the Company
Every corporation should have regular management meetings to develop initiatives, address issues, and discuss the company’s current status. The bylaws set forth where and when those meetings take place. Chief among these meetings is the required Annual Meeting of Shareholders and is really the only meeting that needs to be spelled out in detail. The other meetings can be given a rough framework and you’re fine.
The annual meeting section should include information like the following:
- When the corporation will hold annual shareholder meetings
- How the corporation will notify shareholders about the meetings
- The quorum required
- The order of business that the meetings will follow
Other meetings don’t need to be spelled out, just stated how they may be called.
Committees and Subcommittees
Creation of board committees and subcommittees seems to be a pretty big deal in all the bylaws templates I’ve seen online, but it just seems obvious to me. Also in a small company where you’re the only board member it’s pretty silly to create a bunch of subcommittees of just yourself. Neverthless I have a small section in the bylaws for it under the powers of the directors in the event your company grows and you find yourself with a dozen board members someday.
Other
There are a few other sections touching on conflicts of interest, indemnification of employees, loans to employees, the keeping of financial records and dividends to shareholders. It’s all pretty boilerplate stuff and kind of boring but it’s there in the template. Don’t worry too much about how perfect these all need to be, except for maybe indemnification, since you can change and amend the bylaws whenever you want. There’s even a section for that in the bylaws where you spell out how to amend them.
While you as a solopreneur or small business can probably get away without formal bylaws, remember that they are technically a requirement and can be used as one of the elements to prove a clear separation between the business and any personal commitments you might have. That separation of liability is one of the primary reasons to incorporate in the first place so don’t screw it up by not dotting all your “i’s” and crossing all your “t’s”.
MY LEGAL DISCLAIMER: I am not a lawyer. I do not want to be a lawyer. I have put together the bylaws template below from reading many other sets of bylaws and picking out the sections I felt were relevant for a small corporation. If you find them inadequate in any way or find yourself in any situation where they may be scrutinized my advice is to take them to a lawyer and have them amended to the proper legal verbiage for your state. I take no responsibility for any issues that may arise due to the bylaws template as offered.
The template is a zip file that contains a Microsoft Word template with a VB macro to highlight the sections you’ll need to change for your situation. The only things you’ll have to update are on the first and last pages so if you don’t want to enable the macro when you open it you don’t have to – it just makes it easier by highlighting the text that needs changing. With that said here’s the link: Corporate Bylaws.