S Corporation Bylaws: Everything You Need to Know
S Corporation Bylaws, also known as Bylaws or Company Bylaws, are a set of guidelines used by a corporation to organize the rules and responsibilities around shareholders, directors, and officers.3 min read
S Corporation Bylaws, also known as Bylaws or Company Bylaws, are a set of guidelines used by a corporation to organize the rules and responsibilities around shareholders, directors, and officers. They are usually written by the incorporator or are the first action taken by the newly elected Board of Directors and provide direction on how the company will operate.
Things to Include in Bylaws
At a minimum, bylaws should mandate an annual S corporation shareholder meeting. They should also mention a provision allowing the board to hold meetings for special occasions like replacing a CEO or a sudden change in the business landscape.
Most corporate bylaws are generic so all stakeholders have the best protection and management structure. Despite the generic nature, the need for bylaws for S corporations played a role in LLCs becoming the business entity of choice for small businesses.
When you're incorporating as an S corporation, submit the application to the correct state agency along with the company Articles of Incorporation and the bylaws.
Importance Of Corporation Bylaws
Bylaws are important as they're required to establish your business as a corporation and once set in place, company decisions are a lot more straightforward when following the written bylaws. Future conflicts can be avoided and with the potential for growth, bylaws help provide a roadmap for that success.
Another reason they're important is that in many cases, banks and other institutions require a copy of the Bylaws before proceeding with business.
Examples Of S Corporation Bylaws
Many bylaws are generic across companies. In regards to annual meetings, when and where they take places should be mandated to choose a Board of Directors for the following year.
Other examples of company bylaws include:
- There must be six directors present to proceed with any voting or transactional business dealings. The corporate officers will include a president, chief financial officer, vice president, and chief executive officer.
- If an officer is neglecting their duties, they can be removed by a shareholder majority vote.
- In regards to board actions, the Board of Directors sets the company direction, their length of term, and qualifications to be eligible for a board seat.
- In regards to management of stock, S corporations can only have one class therefore all that's needed is to mention in the bylaws about how stocks are to be transferred and recorded.
- In terms of responsibility to shareholders, how often do they get reported to? What are their rights?
- With any potential changes in bylaws, the process for editing, repealing, or implementing new bylaws needs to be clear.
What Are Some Of The Terms In Corporate Bylaws?
Special Meeting: used to hold meetings that need action taken that cannot wait until the next scheduled meeting.
Quorum: the least number of shares that must be present to make decisions final.
Voting Trusts: when a shareholder lets an appointed trustee holder their shares and vote in accordance with the trust agreement.
Cumulative Voting: a voting system where each shareholder gets one vote per share multiplied by the number of directors the shareholders are electing.
Remote Communication: meetings not held in person but by other means like phone or video.
Can Corporate Bylaws Be Amended?
Yes, bylaws may need to be changed from time to time.
With so many corporate regulations and law changes, the bylaws need to be updated to take into account any effects. This is just like the business needs of each corporation changing.
In most cases, a vote from shareholders and directors needs to go ahead to pass any amendments. When the voted change gets the go-ahead the updated bylaw comes into effect when adopted by Directors and it has been integrated into the bylaws formally.
The Difference Between Articles Of Incorporation and Corporate Bylaws
Articles of Incorporation are filed with the Secretary of State to register the business as a corporation. A corporation's bylaws are internal documents with day-to-day rules and standard operating procedures after the corporation has been formed.
The bylaws don't need to be filed with any agency, state or federal though some institutions may request a copy.
Bylaws are usually broken down into articles that govern shareholders, the board, and the company's stock to remove any complications.
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