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When forming a new organization, the first thing you need to do is create a set of rules for operation and structure. The best way to ensure consistency across the company is by implementing corporate bylaws.
Bylaws are governance policies that set organizations up for success in both the short-term and long-term, helping to prevent future clashes or disputes that could arise among board members. Bylaws are particularly important for shareholders and others who have a stake in the company.
In this white paper, you’ll learn everything you need to know about corporate bylaws, including what they are, how to create them, and the best way to implement them into your organization.
What Are Corporate Bylaws?
Corporate bylaws refer to a company’s rules, typically adopted by a board of directors when a company is formed. Bylaws are determined and incorporated into a company’s internal makeup, serving as guidelines for the board of directors. In the company’s bylaws, the board of directors can find “how-to” information, such as how to best hold meetings, how to arrange elections, how to form committees, and how to carry out other set responsibilities.
Setting up a company and corporate structure can be an intimidating amount of work, with many legal hoops to jump through. Organizations must ensure they are doing everything possible to drive success, now and in the future. So, it’s critical to have a clear understanding of what exactly goes into a thorough set of corporate bylaws.
How to Write Bylaws for a Board of Directors
Bylaws are typically written by the incorporator of the company, then accepted and adopted by the board of directors. The bylaws serve to spell out general information about the organization, as well as more detailed information about board members, their responsibilities, and more. When writing bylaws for a board of directors, the organization should ensure that all pertinent information is included.
What Information Goes Into Corporate Bylaws?
Bylaws are unique to the company that creates them, but all bylaws usually contain the fundamental information below.
Name, purpose, and location
In this section, an organization must include the full name of their company. They must also detail the company’s purpose. This is important because a purpose might change over time as the company grows and expands. If the corporate bylaws include details of the company’s purpose, it will be easier to stay in line with the organization’s original vision. Lastly, this section should include all company locations, such as offices or distribution centers.
The member section includes all details related to membership in the organization. This can include defining what a member is, the eligibility and selection process for membership, the various types of membership available, rules related to member voting, and details on the process of removing or adding members to the organization.
Board of directors
The board of directors, or group of individuals elected to represent company shareholders, must be detailed in this section. This section covers how the board of directors is composed, including how many members there are and how to add people or fill vacancies. It should also detail the requirements for being a director, the responsibilities each director has, how long directors can serve, how directors are compensated, and any other relevant information.
This section specifies the committees of an organization, including how they are created and nominated, and what their specific responsibilities are. This section should also include details about the executive committee, which is composed of individuals elected to make decisions for the board of directors.
Each board of directors should include various officers, including president, vice president, secretary, and treasurer. This section requires descriptions of each role and each officer’s duties. It should also include procedures for how responsibilities are carried out upon an officer’s absence. This section should detail how officers are elected, how they are removed, how to proceed if there is a vacancy, and how long each officer is expected to serve.
Regularly scheduled meetings give the board of directors opportunities to discuss key business decisions that greatly impact a company. In the meeting section, detail various meetings held by the board of directors throughout the year, including special, annual, and scheduled meetings. Here, discuss the time and place for each meeting, attendance expectations, quorum requirements, how to schedule special meetings and notify board members, and how many board members need to attend each meeting.
Conflicts of interest
This section is crucial, as it can help prevent legal issues down the line, such as penalties from the Internal Revenue Service. Conflicts of interest need to be meticulously specified here so board members clearly know when they should be exempted from voting on a particular issue. This section should also detail how a board member can disclose a conflict of interest to the board, ensuring that member’s removal is not necessary.
As companies grow and change, it might be necessary to make amendments to the bylaws established at the organization’s conception. This section should discuss how amendments can be made, who can suggest changes, how amendments will be voted upon, and how many votes are required for an amendment to pass. It should also stipulate how often the bylaws should be reviewed by the board, which is done usually every few years.
Simplify the Bylaw-Writing Process
Bylaws are incredibly important for any organization, so they should be written correctly from the state. If not, an organization could run into legal trouble or experience conflicts of interest among its board of directors. That’s why it’s essential to receive assistance in crafting your corporate bylaws. BoardBookIt is here to help. We offer solutions that make it simple to manage your board of directors — from forming committees to amending bylaws. We can help you facilitate the writing of bylaws, as well as implement them into your organization.
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