Corporate Bylaws in a Nutshell

What should my business include in its corporate bylaws?

One of the key foundational documents for corporations and partnerships are corporate bylaws which establish the rules for the internal operations and governance of the entity. Unlike Articles of Incorporation, bylaws are not filed with the Secretary of State in South Carolina. While the state does not require businesses to create bylaws, this document is essential for establishing the day-to-day operations of an organization.

Bylaws also serve to make your business more legitimate in the eyes of state and federal authorities, financial institutions and investors. In fact, it you are seeking a business loan or venture capital, banks and other financiers typically request copies of foundational documents as part of their due diligence.

In other words, bylaws are crucial for establishing a new business organization.

What topics are covered in bylaws?

While there are no state guidelines governing how bylaws should be prepared, there are certain items that should be covered. First, the document should outline the corporate or business structure, and establish the rights, obligations and powers of officers, directors and shareholders. Bylaws also specify how officers are nominated and elected, as well as the term of office, either one, two or three years.

Because many companies have a board of directors, bylaws also establish the number of board members, who are typically elected by shareholders. In turn, the board members elect or appoint the officers and directors. While officers report to the board, the board of directors reports to the shareholders. In addition, bylaws establish where and when meetings will be conducted, typically quarterly or annually, what constitutes a quorum in addition to voting and proxy rules. Other important features of bylaws include information about issuance of shares, a dispute resolution procedure as well as any other operational details.

Other Considerations

In cases where there are multiple partners or business owners, bylaws do not established how ownership will be transferred. For this reason, we often recommend putting a buy-sell agreement in place that provides a mechanism for buying out the shares of a departing partner or owner.

In the end, corporate by laws are a roadmap that will help to clarify how your business will be run. If you are starting a business and need assistance with drafting bylaws or preparing and filing any other foundational documents, you should engage the services of an experienced business law attorney.