Key Takeaways

  • S corporation bylaws are essential internal governance documents outlining how an S corp operates and makes decisions.
  • They establish roles and responsibilities for shareholders, directors, and officers, ensuring compliance with both state and IRS S corp requirements.
  • Key sections typically address shareholder meetings, voting rights, officer duties, recordkeeping, and amendments.
  • Well-drafted bylaws help prevent disputes, guide decision-making, and demonstrate corporate legitimacy to banks, investors, and courts.
  • S corporation bylaws differ from LLC operating agreements but serve a similar function in governing internal operations.

S corp bylaws are essentially a set of rules established by a corporation's board of directors. Created when a corporation is first formed, this helps protect the company as well as the corporation's shareholders. More specifically, S corporation bylaws clearly state all of the rules and regulations regarding the company's internal management. Since bylaws are specific to each organization or business, they will differ from one corporation to the next. 

What Is an S Corporation?

In order to incorporate your company, you must complete the associated application process. Your articles of incorporation must also be submitted, in addition to S corporation bylaws. This type of business differs from other corporations in that it is not subject to double taxation. This means that all profits pass through to the shareholders, and the corporation does not need to pay taxes. 

Based on state law, an S corporation must adopt bylaws which represent the internal rights and responsibilities of the shareholders. In comparison, a limited liability company, or LLC, does not need to complete this process. However, LLC members are expected to create an operating agreement in relation to their company. It is also important to note that S corporations are only allowed one type of stock. 

What Are Corporate Bylaws?

Corporate bylaws are sometimes referred to as "company bylaws" or simply "bylaws." This set of rules is used by corporations to organize all associated rules and regulations for the company's directors, shareholders, and officers. These bylaws are then typically broken down into articles that further govern the corporation's shareholders and board, as well as the company's stock. By taking this step, shareholders will need to adhere to specific guidelines that are not covered by the statute. 

Importance of S Corporation Bylaws

S corporation bylaws are more than a formality—they form the backbone of a corporation’s internal structure. These bylaws define how an S corp’s leadership will make decisions, handle disputes, and conduct daily operations. They ensure compliance with state laws and reinforce the S corporation’s separate legal status, which protects shareholders from personal liability.

Well-written bylaws clarify the relationship between the board of directors, officers, and shareholders. For example, they dictate how meetings are called, how many directors are required for a quorum, and how votes are cast. This structure helps prevent confusion and conflict while providing a clear roadmap for business continuity.

Common Provisions Found in S Corporation Bylaws

While S corporation bylaws vary by company and state, most include several standard provisions that promote consistency and legal compliance. Common sections include:

  1. Corporate Purpose and Name – Identifies the legal name and business purpose of the S corp as registered with the state.
  2. Shareholder Information – Details share classes (S corps can only have one), ownership percentages, and transfer restrictions to maintain S corp eligibility.
  3. Board of Directors – Describes how directors are elected, removed, and replaced; how meetings are conducted; and what constitutes a quorum.
  4. Officers and Duties – Lists corporate officer positions (e.g., President, Secretary, Treasurer) and outlines their specific powers and responsibilities.
  5. Meetings and Voting Procedures – Specifies how often meetings occur, notice requirements, and voting procedures for major decisions.
  6. Recordkeeping and Corporate Seal – Establishes rules for maintaining accurate meeting minutes and corporate records.
  7. Fiscal Year and Financial Reporting – Defines the accounting period and procedures for reviewing and approving financial statements.
  8. Amendments – Outlines how the bylaws can be modified or repealed.

Each of these provisions ensures the S corporation operates transparently and in accordance with its governing documents and applicable law.

Who Needs Corporate Bylaws?

All corporations are required to have corporate bylaws in order to properly structure their organizations. By creating this critical document, all rules will be set in terms of meetings and voting rights. Each individual will also be made aware of his personal power and associated responsibilities. 

How S Corporation Bylaws Differ from Other Entities’ Governing Documents

Unlike LLCs, which operate under operating agreements, or partnerships, which use partnership agreements, corporations—including S corporations—must adopt formal bylaws. These bylaws serve as the primary document defining the internal governance structure.

For example, an LLC operating agreement may allow flexible management structures and profit distribution, whereas S corporation bylaws must adhere to strict ownership and distribution rules under IRS Subchapter S regulations. This includes limiting the corporation to one class of stock and ensuring all shareholders are U.S. citizens or residents.

Because of these requirements, drafting bylaws that align with both state corporate law and IRS eligibility standards is critical to maintaining S corp status.

What Are Some of the Terms in Corporate Bylaws?

When familiarizing yourself with corporate bylaw terms, it is important that you have a thorough understanding of each definition. 

Here is a short list of some of the terms you need to know:

  • Special meeting — This is a meeting that cannot wait until the next scheduled meeting. A special meeting is required when making key, time-sensitive decisions.
  • Quorum — This is the minimum number of shares required to make decisions at a meeting. 
  • Voting trusts — A trustee is appointed by a shareholder, who not only holds shares but is able to vote based on the trust agreement. 
  • Cumulative voting — Within this system, each shareholder is given one vote per share. This is then multiplied by the number of directors elected by the shareholders. 
  • Remote communication — This is when a meeting is held via telecommunication, such as over the phone or through a video chat app. 
  • Company management structure — This structure can either be simple or complex in terms of management. For example, a simple structure may consist of a president, whereas a complex structure may include a CEO, presidents, and vice presidents. 

There are numerous other terms you need to know, so be sure to do your homework. If you are unclear about any term at any time, it is important to seek advice. 

When Do Corporate Bylaws Come into Effect?

Once the state issues the articles of incorporation, initial bylaws are created at the first organizational meeting. This meeting is usually run by the corporation's directors. When bylaws have been officially adopted, they continue to be in effect until any changes are made. These bylaws will state all associated procedures and rules, guiding the company's internal management. 

When creating an S corporation, you should not overlook this critical step. By developing clear, formal bylaws, all associated shareholders, officers, and directors will better understand what is expected of them. This helps to maintain order and promotes sustained success. Since a corporation's bylaws can influence future litigation, it is recommended that you practice due diligence and create detailed, comprehensive bylaws.

Amending and Enforcing S Corporation Bylaws

Once adopted during the corporation’s organizational meeting, bylaws remain in effect until formally amended. Amendments typically require approval by the board of directors and, in some cases, shareholder consent. For instance, changes to voting rights or director terms usually need shareholder approval to take effect.

Enforcing bylaws helps maintain credibility and compliance. Failure to follow bylaws can expose the corporation to legal risk, including piercing the corporate veil, where courts may hold shareholders personally liable for corporate actions. Regularly reviewing bylaws ensures they remain compliant with evolving state laws and reflect current business operations.

Best Practices for Drafting S Corporation Bylaws

When creating S corporation bylaws, clarity and compliance are key. Here are best practices to follow:

  • Consult State Requirements: Some states mandate specific provisions, such as quorum definitions or notice periods for meetings.
  • Keep IRS Rules in Mind: Ensure no provision violates S corporation eligibility rules, such as allowing multiple stock classes.
  • Use Clear Language: Avoid legal jargon that may confuse shareholders or officers.
  • Establish Amendment Procedures: Clearly outline how future changes will be proposed, approved, and recorded.
  • Review Regularly: Update bylaws to reflect changes in leadership, business structure, or legal regulations.

Since bylaws are legally binding, many corporations work with an attorney to ensure full compliance and protect shareholder interests. If you need help drafting or reviewing S corporation bylaws, you can connect with an experienced business attorney through UpCounsel’s marketplace.

Frequently Asked Questions

  1. Are S corporation bylaws legally required?
    Yes. Most states require corporations, including S corporations, to adopt bylaws that define their internal operating procedures and governance structure.
  2. Who creates the S corporation bylaws?
    The incorporators or the initial board of directors typically draft and approve the bylaws during the corporation’s first organizational meeting.
  3. Can S corporation bylaws be changed later?
    Yes. Bylaws can be amended by the board of directors and, when required, by shareholder vote, following the amendment procedures outlined in the bylaws themselves.
  4. What happens if an S corporation operates without bylaws?
    Operating without bylaws can lead to confusion, legal disputes, and challenges in maintaining S corporation status or protecting limited liability.
  5. How do bylaws affect S corporation taxes?
    Bylaws don’t directly influence taxes, but they help maintain S corp compliance with IRS rules, which is necessary to preserve pass-through tax treatment.

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