A corporate bylaw is the set of rules that govern the internal operations of a corporation. Every corporation should have an Articles of Incorporation, sometimes called a certificate of incorporation in other states, and bylaws. The Articles of Incorporation is filed with the state’s secretary of state or other official body responsible for registering corporations, whereas the bylaws is an internal document that governs how a corporation operates.
It is often desirable for corporate bylaws to be drafted by an attorney in advance of incorporating so that the shareholders of the corporation know how the corporation will be governed before investing.
Here are some examples of clauses found in a corporate bylaws:
Directors – The bylaws shall set forth the number of directors a corporation will have on its board of directors. It is often advised that the number of directors should be an odd number to prevent frequent deadlock. The power, rights, and authority of the directors should also be detailed in the bylaws.
Officers – The officer positions of the corporation should be included in the bylaws along with a description of the duties and authorities of the officer positions. In addition, the bylaws should cover how officers will be elected or appointed, whether they will be compensated and how compensation will be determined, and the length of each officer’s term.
Meetings – Of both the board of directors and shareholders. The number, frequency, and length of meetings should be defined in the bylaws. Quorum requirements (the number required to hold meetings) as well as voting rights (who gets to vote on certain issues) should also be defined.
Under Wisconsin’s corporation statute, Chapter 180, in order to change or amend any provision in a corporation’s by-laws, it must be approved by both directors and shareholders unless otherwise provided in the Articles of Incorporation or the bylaws. Thus, it is important to ensure the original draft of the bylaws reflects the operations of the corporation because it may prove difficult to amend at a later date if the requisite support is not met by the board and shareholders.
When in doubt, a corporation should consult Chapter 180 of the Wisconsin Statutes for laws governing corporate actions. While many states have corporate statutes, each state’s laws may vary slightly in regard to specific requirements for creating a corporation and its governing principles. An experienced attorney can advise on laws governing corporations and best practices for drafting bylaws.
