5 Key Elements in Every Set of Corporate By Laws

By on July 19, 2013

Incorporating can do a lot for your business. You can retain earnings, take advantage of corporate tax benefits, and raise money more effectively by issuing stock. However, there are some important steps to take to make sure that your corporation is sound and protected. The most key is setting up your corporate bylaws.

A lot of business owners are naturally focused on the business and don’t give the legal documentation a lot of thought. Unfortunately, this can lead to some serious missteps. If your corporate bylaws are not complete, you can be turned down for financing, face confusion and anger about how the board is selected, or even face legal action due to conflicts of interest. Here are five key elements that should be part of every set of corporate bylaws.

1) Designation of the corporation as public or private. Private corporations have very different reporting procedures and money-raising practices than public corporations. Be sure you know which one you prefer for your company, and make sure it’s listed in the bylaws with your company’s name, address, and principal place of business.

2) Number and types of shares the company can issue. If you are a public corporation, be sure the bylaws indicate what types of stock shares and what stock classes are available. This will make it much easier to raise funds by issuing additional stock, and will avoid the board having to discuss and debate the process when you need stock issued quickly.

3) Process for selection of the board, including qualifications. Things can get heated very quickly if there isn’t a clear process for choosing board members. Are certain relatives or company associates not allowed? What qualifications should a board member have? How many members are on your board? If someone steps down, how and when must they be replaced? These questions are very important, and having everything spelled out can avert disaster in the future.

4) Procedure for corporate record-keeping and schedule of financial audits. In this day of corporate financial
scandal, being absolutely clear about your record keeping and audit schedule is vital. Having this information clearly spelled out will help banks be confident in your financial records, which can make the difference between securing a financial arrangement and being denied.

5) Rules for approval of contracts, loans, checks, stocks, and other corporate resolutions. This is another area where clear guidelines can stop shady deals before they have a chance to begin. Be sure that it’s clear what actions will come before the board, and how they will be decided. Some actions may need a unanimous vote and others a simple majority. This is your time to decide, before an unpleasant issue arises.

There are obviously many other elements that must be included in corporate bylaws, but those listed above are some of the ones that will help you head off trouble and keep things clear. Remember that bylaws must be approved by the board, and be sure to seek legal assistance in resolving any questions that arise. With complete bylaws, your company will be in a great position and you will be able to focus on what you do best – business.

E.J. Dealy is CEO of The Company Corporation, which provides affordable incorporation services to small businesses and entrepreneurs nationwide. In addition to filing corporations and limited liability companies (LLCs), The Company Corporation offers a wide range of products and services, including license and permit assistance, corporate kits, business education books, certificates of good standing, and more. The Company Corporation is a service company and does not offer legal or financial advice.

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