Key Takeaways

  • Corporate bylaws are legally binding internal rules that govern how a corporation operates and resolve disputes.
  • Unlike articles of incorporation, bylaws are not filed with the state but still carry legal weight.
  • Courts can enforce bylaws in disputes, making accuracy, clarity, and regular updates essential.
  • Poorly drafted or outdated bylaws can create legal risks, governance confusion, and challenges to corporate decisions.
  • Bylaws should cover director and officer roles, meeting procedures, amendments, and conflict of interest policies.
  • Nonprofits, including churches, must ensure bylaws are consistent with state and federal law to avoid losing tax-exempt status.

The purpose of bylaws for corporations is to establish the company's management structure, procedures, and dispute resolution processes. This legally binding document serves as an operating manual for the corporation and is developed by its board of directors.

What Are Bylaws?

When a new corporation is formed, the creation of bylaws is one of the first tasks of the board of directors. This document is tailored specifically to your industry and the needs of your company. It protects the rights and responsibilities of your owners, directors, executives, shareholders, and other stakeholders. They establish processes for elections and for resolving disputes that arise. Bylaws must be formally adopted by a vote of the board and can be changed by amendment.

Companies that do not establish bylaws are subject to the state laws governing corporations by default. Corporations can establish their own procedures with bylaws, but some legal statutes are mandatory, while others can be altered.

Bylaws are often required to open a corporate bank account and to purchase some types of insurance policies. The larger and more complex your company, the larger and more complex your bylaws will be.

Are Bylaws Legally Binding?

Yes, corporate bylaws are legally binding. Once adopted by the board of directors, bylaws serve as enforceable rules that guide how the corporation is managed. Courts generally treat bylaws as a contract between the corporation and its shareholders, officers, and directors. If disputes arise—such as challenges to elections, officer authority, or shareholder rights—judges may refer to the bylaws to determine the proper outcome.

Because bylaws have this binding effect, vague or inconsistent provisions can expose a corporation to lawsuits or regulatory scrutiny. For example, nonprofit organizations that fail to follow their bylaws when making decisions risk losing their tax-exempt status or facing legal challenges.

How Do Bylaws Differ From Articles of Incorporation?

Bylaws are sometimes confused with articles of incorporation, but these are two different documents with different purposes. The articles of incorporation are filed with the state where your company will exist and include basic information about the company, including:

  • The name of the person creating the corporation
  • The number of stock shares that can be issued
  • The names of the directors
  • The business address

This document does not detail the company's structure, administration, or function. Articles of incorporation are filed with the state.

Why Clear and Updated Bylaws Matter

Clarity and consistency in bylaws are crucial. Ambiguous language may create confusion about voting rights, board powers, or officer responsibilities. Outdated bylaws—sometimes referred to as “dusty bylaws”—can be even riskier, as they may conflict with updated state laws or IRS requirements. Courts are more likely to intervene when bylaws are not followed, exposing the corporation to unnecessary disputes.

Regular review and amendment of bylaws help ensure compliance with current laws and industry standards. Many organizations adopt a practice of reviewing bylaws annually or biennially to keep them relevant.

What Provisions Should Be Included in the Bylaws?

Although bylaws will vary by organization, the basic elements should include:

  • Name of the corporation
  • Business address
  • Purpose of the corporation
  • Names of members
  • Names of the board of directors
  • Names of officers
  • Committees
  • Meeting requirements
  • Conflicts of interest
  • Procedures for amendment

The written statement of purpose will explain to current and future managers, directors, officers, and stakeholders the original mission of the company. It discusses why you started the business, who your target customers are, what distinguishes your products and services from others in the market, how you are different from your competitors, and how you plan to reach the goals you've set for your corporation.

The statement of purpose is especially important for nonprofit organizations, since it will be used to determine if you qualify for tax exemption with the IRS, as well as for legal 501(c)(3) or 501(c)(4) status.

Legal Risks of Poorly Drafted Bylaws

Poorly drafted bylaws can undermine corporate governance. Risks include:

  • Invalid Elections: Ambiguity in voting rules can lead to contested elections.
  • Board Deadlock: Lack of clear procedures may stall decision-making.
  • Conflicts of Interest: Weak or missing conflict provisions increase liability.
  • Regulatory Issues: Nonprofits risk penalties or loss of exemption if bylaws do not align with IRS and state rules.
  • Litigation: Shareholders or members may challenge corporate actions taken outside bylaw authority.

Having bylaws reviewed by legal counsel helps reduce these risks.

What Are Committees?

Committees are groups of board members that have specific projects or duties. The bylaws should detail how committees are formed, how members are appointed, and any existing committees and their responsibilities. For example, many corporate boards have membership committees, audit committees, and nominating committees.

Also indicate how committees operate, how often they should meet, and what type of authority they have. In most cases, a corporate resolution is used to create and dissolve committees. Members of your board who have valuable skill sets, such as accounting or fundraising, can be chosen to lead committees.

Committees usually don't make binding decisions independently; instead, they make recommendations to the board to assist in these decisions.

Committees can either be standing, which means they are always in existence, or ad hoc, which means they are created for a specific purpose and dissolved when no longer needed. Other common committees include compensation, executive, research, and ethics.

What Are Officers?

Officers are board members who have specific responsibilities, usually including the president, vice president, secretary, and treasurer. The bylaws indicate how officers are selected and the duties and responsibilities they have. This section may detail the information about the nominating committee and indicate the length of each officers term.

In most cases, officers are categorized as employees of the corporation. They oversee the daily administration of business and make reports to the board of directors. Most corporations allow directors to serve for one year. Sometimes, an individual can hold more than one office; however, the same person cannot serve as both secretary and president.

Enforcing and Amending Bylaws

Enforcement of bylaws generally occurs internally through the board of directors, but courts may step in when disputes escalate. For example, if officers or directors act beyond their authority, shareholders can use the bylaws to hold them accountable.

Amendments are typically permitted by a majority or supermajority board vote, though some corporations also allow shareholder approval. Amendment provisions should be written clearly to avoid procedural disputes.

Bylaws should also align with state corporate statutes, since certain legal requirements cannot be overridden by corporate rules. Regular amendments ensure the bylaws remain legally binding and practical as the company evolves.

Frequently Asked Questions

  1. Are bylaws legally binding?
    Yes. Bylaws act as an enforceable contract governing how a corporation or nonprofit operates. Courts and regulators may enforce them if disputes arise.
  2. Do bylaws need to be filed with the state?
    No. Unlike articles of incorporation, bylaws are internal documents. However, they must comply with state law to be enforceable.
  3. What happens if a corporation does not follow its bylaws?
    Failure to follow bylaws can invalidate decisions, create shareholder disputes, and expose the corporation to lawsuits or regulatory penalties.
  4. How often should bylaws be updated?
    Most corporations review their bylaws every one to two years, or whenever laws or organizational needs change, to keep them accurate and enforceable.
  5. Can bylaws override state corporate law?
    No. Mandatory state statutes take precedence. Bylaws can supplement or customize governance only where the law allows flexibility.

If you need help with creating corporate bylaws, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.