What are Corporate Bylaws and Why You Need Them?

‘Corporate Bylaws’ — quite a heavy term, ain’t they? However, this is a term most necessary if you are a business that chose a corporation as its form. Corporate Bylaws, Company Laws, or Bylaws, you can term it in any way you like. So what are they, and how important are they?

A corporation’s bylaws document is a legal paper that lists down some crucial rules and regulations set to govern the corporation’s organisational performances. That way, the authorities will keep the performance on track and help it run smoothly. These rules are established by the Board of Directors of the company when it is newly established.

What do they specify? It lists down the duties and responsibilities of the board of directors, employees, managers, along with the procedures that need to be agreed upon and followed.

Components of Corporate Bylaws

Now, what does the bylaws document contain in general?

1. Board of Director

What do you understand by ‘Board of Directors?’ I’m sure by now you have its common meaning that terms them as the ‘management body of a company.’ In addition to that, the board of directors deal mostly with high-level operational activities, oversight, and guidance.

About the bylaws, it should specify;

• The number of maximum to a minimum number of directors.
• The highest qualifications of those directors.
• Their roles and responsibilities.
• Their tenure of working in a company.
• How they fill up vacancies and whether other shareholders can back them up.

2. Holding Meetings

The document must also specify/address how organisational meetings will proceed or hold in the company. This includes weekly, regular, and annual meets, which may or may not have directors, founders, and even stakeholders.

3. Company’s Identification Information

Companies registered as corporations or in anyways that might be the case should include necessary basic information about the company in the legal bylaws document;

• Name of the Corporation
• Location of the Corporation
• Principal Place of the Corporation
• The Fiscal Year
• Specifying whether the company is public or private

4. Purpose of Establishment

When company founders include a statement of the purpose in their corporate bylaws, current and future managers can better understand why this business was founded. They’ll be able to assess opportunities aligned with what they set out for themselves when it comes time to grow or expand into new markets, which will help ensure success.

The questions that the document must answer are, for example;

• The reason behind this company’s establishment.
• How is the organisation different from other competitors in the market?
• Who are the primary audiences?
• How does the organisation plan to resolve problems?

Starting a nonprofit corporation, the IRS must understand your business’s purpose. This will further ensure them to determine whether or not to grant special tax-exempt status such as 501(c)(3) and/or (4).

5. Information about the Shareholders

You might already know the importance of shareholders in a company. Also known as stockholders, these people are the legal assets of your company’s shares and stocks. Now this corporate bylaws document must include information about shareholder meetings. They further need to include:

• When will there be meetings held for shareholders?
• How and when will the company notify the shareholders about any sessions, be it annual or half-yearly?
• The process through which shareholders can file a petition for special meetings.

6. Protection against Company Threats

There are few rules of play, and corporate bylaws can provide important legal protection against potential threats like a hostile takeover. In this way, they serve as windows to protect shareholders from abusive practices by the people running your company.

These protections also depend on how well written and enforced each local law is for public corporations in question.

7. Amendments

One should update the bylaws to reflect the changing needs of a company. For instance, if its membership base changes significantly or new members are added, then there is no reason why it cannot approve amendments with less than the two-thirds majority required as well. A corporate charter provides guidelines for how an organisation operates and behaves in relation to themselves and other parties that affect their day-to-day operations.

In other words, corporate bylaws are important for maintaining the organisation’s stability and rules. They should be updated as companies grow or change their structure, which will require amending these documents with new information about how to do so.

Importance of Corporate Bylaws in Corporates

A few reasons why corporate bylaws are important to any business, especially for a master in entrepreneurship and innovation, are:

• Specifying rules and regulations for your organisation also allow diverse responsibilities on every shoulder working in the company. It helps improve the office’s organisational performances, and an easy workflow meeting ends smoothly.
• A business may face many different issues in its lifetime, but as you grow and expand your team, it’s important to have bylaws that outline what will happen if one partner wants out or there is disagreement among members. These parts of the document ensure peace of mind for everyone involved with how things should operate when they’re not clear on either end.
• The bylaws are the backbone of your business and will be necessary for many different tasks. You might need to show them when opening up a bank account, getting loans from banks or other lending institutions, and setting up company retirement plans to facilitate employee benefits. This might include medical insurance coverages.

Key Takeaways

When you adopt your bylaws, it is important to make sure that they are distributed among all company members. After all, these rules affect everyone’s role in how things work in the corporate structure. Having a set of company bylaws can stock time and help make the company more trustworthy.

At times, you might even require professionals or consultants for business management for help when you have foreign investors and several stocks to take care of. Expert Mind Solutions is a Malaysian-based company consulting firm that provides management training and strategic business planning courses. By taking time to consult your business requirements, you can save yourself from lots of stress and useless discussions from elsewhere.