The bylaws are the regulations of a corporation. They contain the basic rules for the conduct of the corporation’s business and affairs. The bylaws may contain any provision for managing the business and regulating the corporation’s affairs that is not inconsistent with statutory law or the corporation’s Articles of Incorporation.
The bylaws generally cover the areas of the corporation’s internal management. Typical bylaw provisions concern the following:
- location of offices
- formalities concerning the holding of shareholders’ and directors’ meetings (i.e., date, place, and notice)
- voting entitlement of shares
- powers, duties, and qualifications of directors and officers
- provisions for appointing directors’ committees
Bylaw provisions often follow the language of the statutory provisions. However, corporation bylaws — like the Articles of Incorporation — may also be used to vary certain statutory default provisions. This situation may arise, for example, in connection with shareholders’ and directors’ meetings, where the corporation may want to alter the statutory quorum or voting requirements.
The initial bylaws are adopted at the organizational meeting held after the Articles of Incorporation are filed. The bylaws may be amended thereafter by the shareholders or, in some cases, by the board of directors.
Organizational meetings
The organizational meetings are held after the Articles of Incorporation are filed in order to complete the organization of the corporation. If initial directors were not named in the articles, the incorporators will hold an incorporators’ meeting to elect the directors. In some states, they also adopt the bylaws. The usual practice is to hold a “paper meeting” or sign a statement of the sole incorporator setting forth the action taken. The minutes or statement is filed in the corporation’s minutes book.
The directors complete the organization by holding what is usually called “the first meeting of directors”. At their organizational meeting, the directors will adopt the bylaws (unless they have been adopted by the incorporators), elect officers, accept subscriptions for and issue stock, and generally take all other actions required to complete the organization.
Are corporate bylaws required?
Most states require corporations to have bylaws. The corporation statutes also require corporations to keep a copy and to provide it to any shareholder requesting an inspection.
Statutory restrictions on corporate bylaws
While the board of directors and/or shareholders have broad discretion in deciding what the bylaws should provide, there are two common statutory restrictions — a bylaw provision cannot conflict with a provision in the articles of incorporation, and it cannot violate the law.
Two decisions act as reminders of those statutory limitations.
- In one decision, a board of directors wanted to amend the corporation’s bylaws to reduce the quorum for shareholders’ meetings to twenty percent of shares. The court held that it couldn’t because the corporation statute requires that any change to the statutory default rule (which is that a majority of shares is required for a quorum) has to be set forth in the articles of incorporation – and not the bylaws.
- In the other decision, an incorporated association’s board of directors ordered some members to pay the fee charged by a law firm hired by the corporation to investigate the signatures on a petition presented by the members. The board relied on a bylaw allowing it to make special assessments against members. But the court ruled against the corporation because the bylaw conflicted with the Declaration of Incorporation — which provided that no member could be held personally liable for corporate debts.
These cases are a useful reminder for shareholders and directors of new or existing corporations that there are some limits on what they can provide in their corporation’s bylaws.
Related content
The Corporation Handbook: This comprehensive guide provides an overview of corporation-related topics, including how corporations are taxed, how to maintain good standing, and more.
For more information, contact CT Corporation.