Do Corporations Have Operating Agreements or Bylaws?

Key Takeaways

• Corporations do not use operating agreements in the same way LLCs do, but they rely on bylaws and shareholder agreements to govern internal affairs.
• The keyword “do corporations have operating agreements” is a common query because of confusion between LLC and corporate governance documents.
• Bylaws for corporations serve a similar purpose to operating agreements for LLCs, but they differ in format, legal necessity, and application.
• Shareholder agreements can supplement corporate bylaws in outlining governance, especially in closely held corporations.
• Corporate bylaws are typically required at formation and cover governance structure, officer roles, meetings, and voting procedures.

An operating agreement for corporation is a document similar to bylaws that limited liability companies (LLCs) use. 

Corporation Bylaws and LLC Operating Agreements

When you own a corporation, you should have bylaws to explain the regulations and rules that direct your operation. Each state dictates the terms you must include. Corporation bylaws typically include the following:

• Organization structure
• Corporation members' responsibilities
• Information about the board of directors
• List of committees
• Details about shareholders' and directors' meetings

In addition, most states require limited liability companies (LLCs) to establish an LLC operating agreement. This document acts similar to bylaws and usually includes the following: 

• Information about member's voting powers, rights, and ownership percentages
• Profit and loss allocation
• Details about management
• Fiduciary responsibilities of managers and members

Corporations and LLCs do not need to file their documents with the secretary of state's office. Often, lenders, banks, attorneys, and potential investors request these pieces of information. 

Do Corporations Have Operating Agreements?

Corporations do not use operating agreements in the same way limited liability companies (LLCs) do. Instead, corporations are governed primarily by bylaws, which serve a similar function by detailing the rules and procedures for internal operations. This often leads to the common question: do corporations have operating agreements?

The confusion stems from the similarity in purpose between corporate bylaws and LLC operating agreements. Both documents:

• Define organizational structure and member roles.
• Outline governance processes, such as voting and meetings.
• Help resolve internal disputes.
• Are typically kept on file internally and not submitted to the state.

While an LLC's operating agreement is often used to define ownership percentages and profit distribution, a corporation uses bylaws in combination with shareholder agreements to achieve similar governance and control mechanisms, especially in closely held corporations.

How to Design a C-Corporation Agreement

As the standard form used by a corporation, a C corporation serves as the basis for all other forms. Drafting the bylaws should be one of the first items you take care of when you form a corporation. This process makes sure the business remains managed consistently right from the beginning.

The first step you need to take is determining the number of directors on your board. Then, these members oversee and hire the corporation's officers. Make sure you have an odd number on the board to prevent tie votes. Determine the corporate officer roles, such as chief financial officer and chief executive officer.

Include a buyout provision if your company does not have public trading capabilities. Departing shareholders in a buyout agreement can sell the shares back to the corporation or other shareholders. If neither group wants the shares, they become available for non-shareholders to purchase.

Determine when the annual shareholders' meeting occurs. Most states make shareholders meet at least once each year to address specific corporate business. Figure out how to call special shareholders' meetings. You might need to vote on certain issues that can't wait a year. 

How to Write an S Corp Operating Agreement

Also known as an S corp, an S corporation is a special Internal Revenue Service (IRS) tax classification that lets a company's shareholders receive tax advantages. When you register the S corp with the state, you must file articles of incorporation. The articles are similar to an LLC's operating agreement.

The first step to register the S corp is filing the Articles of Incorporation, which act like bylaws. This document includes the company's name, address, and purpose as well as how much stock you will issue. S corps can only issue one class of stock.  If the business has members, you must explain their roles, needs, and term lengths. 

If you have an LLC, you might use operating agreements, which act like corporate bylaws. These agreements provide details on ownership, profit and loss distribution, and voting responsibilities. There is no board of directors or stock found in an LLC.

When Do Corporations Use Shareholder Agreements?

Although not required by law, shareholder agreements are often used by corporations—especially closely held or family-owned ones—to supplement bylaws. These agreements help manage expectations among shareholders and provide additional governance structures not covered in bylaws.

A shareholder agreement may include:

• Buy-sell provisions and restrictions on share transfers.
• Rules for resolving deadlocks between shareholders.
• Dividend policies and financial expectations.
• Procedures for amending the agreement.

Unlike bylaws, which are typically adopted at formation and govern the corporation as a whole, shareholder agreements are contractual and apply only to the parties that sign them. They become particularly important in small corporations where disputes can impact control or decision-making.

Operating Agreement vs. Articles of Incorporation

Articles of Incorporation dictate the basic operation of a company and explain how the company will operate. On the other hand, an operating agreement is also a document but is only for an LLC. There also several key aspects to remember.

• Function. The Articles of Incorporation state that a business becomes a corporation in the state it operates from. It also defines the business activities, names of owners, and information about stocks. The operating agreement describes how an LLC operates and the responsibilities of owners.
• Significance. Both documents are legally binding. Articles of Incorporation become public record, while you can use operating agreements for legal issues.
• Similarities. Both documents have similar information about their business, including name and purpose. They also both define ownership and represent the business structure.
• Differences. To register your corporation as a separate entity, you must file Articles of Incorporation with the secretary of state's office. LLCs do not need to have an operating agreement or file one. Each state has its own requirements for filing forms.
• Effects. If you forget or inaccurately report information in either document, you can put your operations at risk for legal issues. Filing the articles incorrectly can result in rejection or delays in forming the corporation. Incorrectly filling out the operating agreement can lead to conflict between the owners.

Bylaws vs. Operating Agreements: Key Differences

Here are the major distinctions between bylaws and operating agreements:

These differences help clarify why asking "do corporations have operating agreements?” often stems from misunderstanding the varying governance requirements between corporate and LLC structures.

Frequently Asked Questions

1. Do corporations have operating agreements like LLCs? No. Corporations use bylaws instead, which serve a similar governance function. Some corporations also use shareholder agreements for added control.

2. Are corporate bylaws required by law? In most states, corporations must adopt bylaws, though they are not filed with the state. They form part of the internal record and are essential for maintaining corporate structure and compliance.

3. Can a corporation have an operating agreement? While the term “operating agreement” is typically reserved for LLCs, a corporation may adopt internal governance documents or shareholder agreements that serve a similar function.

4. What happens if a corporation does not have bylaws? Without bylaws, a corporation lacks a formal structure for decision-making, which can result in legal disputes, especially during audits, litigation, or shareholder disagreements.

5. How do shareholder agreements differ from bylaws? Bylaws govern the corporation’s internal procedures and structure, while shareholder agreements are contracts between shareholders that outline ownership rights and responsibilities.

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