Bylaws vs. Articles of Incorporation
Understanding bylaws vs. Articles of Incorporation is important since both are essential documents in forming a corporation.3 min read
Understanding bylaws vs. Articles of Incorporation is important since both are essential documents in forming a corporation. Articles are the charter that creates a corporation, whereas bylaws set out the rules and procedures for internal governance of the corporation.
What Are Corporate Bylaws?
Bylaws are the set of rules and procedures for the internal functioning of an organization. They are like an operating manual that governs the day-to-day working of a company.
You can create the bylaws either before or after incorporating your business (i.e., filing of Articles of Incorporation). Usually, the incorporator (the person who files the Articles of Incorporation) creates the bylaws. Some companies may hold a board meeting for approving the proposed bylaws.
The bylaws generally include:
- The name of the company.
- The main place of business.
- Policies and procedures for holding meetings, issuing shares, and conducting the business.
- Requirements and procedures for making any future changes in the bylaws and the Articles of Incorporation.
All nonprofit corporations seeking an exemption from federal income tax must have the bylaws since you'll be required to file a copy of the bylaws along with your application to the IRS.
What Are Articles of Incorporation?
Articles of Incorporation are the legal document that creates your corporation. They are also known as Articles of Association, Articles of Formation, or Certificate of Formation in some states.
Articles of Incorporation usually include:
- Name of the founder or incorporator.
- Name of the corporation.
- Principal place of business.
- The purpose of forming the corporation.
- Names and addresses of the founding directors.
- Name and address of the registered agent.
- Authorized capital of the corporation.
- Signatures of the founders and directors.
The founder or the person applying for incorporation prepares and files the Articles of Incorporation with the approval of the initial directors of the company.
Differences Between Bylaws and Articles of Incorporation
- The Articles of Incorporation are like the constitution of the corporation that provides a broad framework for its establishment, whereas the bylaws can be likened to the individual laws that must be consistent with the Articles of Incorporation.
- The Articles of Incorporation include general details about the corporation; the state usually stipulates the particulars you must include in the articles. The bylaws, on the other hand, spell out the detailed rules and procedures for managing the corporation.
- You must file the Articles of Incorporation with the state (usually with the Secretary of State) where you are incorporating the business. However, in most of the states, you need not file the bylaws; they are meant for the internal governance of your organization.
- You must pay a filing fee for submitting the Articles of Incorporation with the state agency. The amount of the fee varies from state to state. No such fee is required in the case of bylaws since you need not file them.
- Just like Articles of Incorporation, the bylaws are admissible in the courts of law; they are helpful in proving that the governance of the company was carried out in accordance with the pre-approved rules and procedures set out in the bylaws.
- Once your Articles of Incorporation are approved by the state agency, they become a public document. The approving agency usually returns the articles and issues a Certificate of Incorporation. The bylaws, however, are not freely accessible to the public; they are kept with the company records. However, you may have to share the bylaws with a third party — for example, with your investors who may insist on having a copy of the bylaws before investing in your company.
- For the sake of simplicity, provisions covered in the Articles of Incorporation should not be repeated in the bylaws. If you do, you'll have to amend the articles whenever you modify the repeated provisions in the bylaws.
- Since the Articles of Incorporation are the charter of your company, you can amend them only in accordance with the relevant provisions of your state. For instance, some states may require you to hold a meeting of your shareholders to carry out any changes in the articles. On the other hand, directors have more freedom in amending the corporate bylaws, which can usually be done without holding a shareholders meeting. Generally, the bylaws themselves contain the procedure for making amendments.
Despite their similarities and differences, the articles and bylaws both are essential documents in establishing the legal structure of a company.
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