Key Takeaways

  • Articles of Incorporation vs. Bylaws: Articles of incorporation create the foundation for the corporation, registering it with the state, while bylaws govern its internal management and operations.
  • Conflict Resolution: Bylaws cannot override the articles of incorporation, but they are vital in defining the internal processes and governance.
  • Amendment Process: Changing articles requires state approval, whereas amendments to bylaws can be made internally without external approval.
  • Legal Hierarchy: Articles of incorporation hold more authority because they establish the business’s legal existence, whereas bylaws are subordinate but still essential for internal operations.
  • Nonprofit Considerations: Both documents are crucial for nonprofits, with specific requirements for tax-exempt status.

Do bylaws supersede articles of incorporation? The answer is no. Articles of incorporation, also called the charter in some states, are part of the organizing documents to create your company. The bylaws are related to the day-to-day operation of the business; they are the "meat and potatoes" of your company.

The Difference Between Bylaws and Articles of Incorporation

An easy way to remember the differences between the two is to think of a corporation as a piece of art in a frame. The frame is the articles, and the bylaws are the picture. Another good analogy is to think of the business as a building. The articles are the concrete foundation, whereas the bylaws are the structure that sits in the concrete.

  • Bylaws are private documents for internal use by an organization. They are not filed with any governmental entity. The bylaws describe the daily operations.
  • Articles of incorporation are public documents filed with the state agency that governs the establishment of corporations, usually the Secretary of State. The articles create the frame of the company.
  • A major difference between bylaws and articles is the process for changing them. To amend the company's articles, you'll need to research and comply with your state's statutes. In some jurisdictions, you must have a shareholder meeting to change your articles. Bylaws are much more easily modified without a formal shareholder vote. The process for changing the bylaws should be spelled out in the bylaws themselves.
  • Bylaws govern the day to day operations of the business and are usually more complex than articles.
  • When your corporation is formed, you file the articles of incorporation with the appropriate agency within your state. They become part of the public record. Fees are required, and they vary by state. The fees may be less for a nonprofit organization.
  • Bylaws are not open to the public unless the company chooses to share them. Potential investors may want to see the bylaws before they turn over any money.

Key Differences and Potential Conflicts Between Articles of Incorporation and Bylaws

While both documents are essential for a corporation, the conflict between articles of incorporation and bylaws typically arises when internal rules (bylaws) contradict the foundational legal structure established by the articles. Articles of incorporation are public, filed with the state, and legally enforceable, while bylaws are internal documents that can be amended by the board or shareholders.

Bylaws cannot supersede the articles. For example, if a company’s bylaws outline certain powers for directors that contradict the powers described in the articles, the articles will take precedence. Bylaws are intended to facilitate day-to-day governance but must remain consistent with the overarching framework established by the articles of incorporation.

It’s crucial to ensure that both documents are clear and aligned to avoid conflicts that may lead to legal challenges or operational inefficiencies. If there is ever a discrepancy, the articles of incorporation will generally prevail.

What Should be Included in Bylaws?

State law grants companies more flexibility to write bylaws than is usually granted in writing articles. For example, Delaware allows you to write whatever rules you wish as long as they don't conflict with the law or the articles for that company.

Your bylaws should also include the following details:

  • How are your directors chosen?
  • What is the process for removing a director?
  • How are board and stockholder meetings carried out?
  • What are the responsibilities of corporate officers, such as the CEO?
  • How are your officers and directors compensated?
  • How are decisions made between meetings?

Bylaws can be as intricate or as vague as you need them to be. It's a good practice to not duplicate anything in the bylaws that also appear in the articles of incorporation. By following this suggestion, you won't have to update the articles when you change the bylaws.

What Should be Included in the Articles of Incorporation?

While requirements vary by state, a few components are common:

  • Company name and principal address.
  • A general corporate purpose, which can be as simple as "to engage in any lawful activity," gives you flexibility.
  • The name and address of the registered agent who can accept legal service for the business.
  • The number, classes, and the initial value of shares of stock.
  • The names and addresses of the initial directors may or may not be included.
  • How assets will be distributed in the event of dissolution.
  • Whether the organization's members will vote.
  • Limited liability for directors (check for state-specific requirements; see Colorado's statutes for example).
  • If the company is a 501(c)(3) organization, federal tax laws require specific language related to the organization's purpose and plan for dissolution.

Limitations on Bylaws

Bylaws are the guidebook for how your company operates. However, they don't trump everything. The bylaws do take precedence over parliamentary procedures and any other internal rules you may adopt. But bylaws don't overrule the law, the articles, or other documents related to the company's formation. They can't require your company to behave illegally or in a manner contrary to the organizing documents.

Common Conflicts and Issues with Articles of Incorporation and Bylaws

Common conflicts that arise between articles of incorporation and bylaws often stem from unclear language, lack of detail, or conflicting provisions regarding governance. For instance:

  • Vague or conflicting language: If the articles and bylaws contain conflicting provisions, it can create confusion about the rights and duties of directors, officers, and shareholders.
  • Amendment processes: Changes to the articles of incorporation require state approval and filing, while bylaws can generally be amended by the board without outside approval. This difference in amendment processes can sometimes create misunderstandings or operational challenges.
  • Overlapping content: Some companies make the mistake of duplicating content between the two documents. This increases the risk of inconsistencies when changes are made to one document but not the other.

To prevent these issues, it’s essential for businesses to draft clear, consistent articles and bylaws and establish procedures for updating both documents as needed.

Some Specific Information for Nonprofit Corporations

In a nonprofit corporation, the articles and bylaws are critically important.

Ensuring Consistency Between Articles of Incorporation and Bylaws in Nonprofits

For nonprofits, maintaining a clear and consistent framework between articles of incorporation and bylaws is especially important. The conflict between articles of incorporation and bylaws could lead to legal or regulatory issues, especially regarding tax-exempt status or board governance.

While nonprofit bylaws help in governing internal operations, the articles serve as the foundation for securing tax-exempt status with the IRS. Ensuring that bylaws align with the corporate purpose stated in the articles helps the organization maintain its compliance with state and federal regulations. Any significant discrepancy can jeopardize the organization’s tax-exempt status or lead to legal challenges from board members or regulators.

Frequently Asked Questions

  1. What is the main difference between articles of incorporation and bylaws?
    Articles of incorporation establish the corporation as a legal entity, while bylaws govern its internal operations and procedures.
  2. Can bylaws override the articles of incorporation?
    No, bylaws cannot override the articles of incorporation. The articles hold a higher legal authority and establish the foundational structure of the corporation.
  3. How can I amend articles of incorporation and bylaws?
    To amend articles of incorporation, you must file with the state and receive approval. Bylaws can be amended internally by the board of directors without state involvement.
  4. Are bylaws required in all states?
    No, while bylaws are essential for smooth operation, they are not mandatory in every state. However, having bylaws is generally recommended to prevent internal conflicts.
  5. What happens if there is a conflict between the articles of incorporation and the bylaws?
    The articles of incorporation take precedence. Any conflicting provisions in the bylaws must be revised to align with the articles.

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