Understanding Corporate Bylaws
Structuring a Corporation
When forming a corporation, it is a necessity to have rules by which the corporation is governed. These rules known as the Corporate Bylaws, provide guidance for not only the current board of directors and shareholders, but future board of directors and shareholders. The corporation operates under the rules that are clearly explained in the corporate bylaws.
Corporate bylaws are not the same documents as articles of incorporation. In general, articles of incorporation are filed with the Secretary of State while there is no requirement that bylaws be filed.
The Acronym NOMEMECPA
“No Mommy See Pa” (known as NOMOMECPA) is both a fun way to remember what is to be included in corporate bylaws.. The acronym NOMOMECPA when expanded means Name, Object, Members, Officers, Meetings, Executive Board, Committees, Parliamentary Authority and Amendments.
Name - the formal name of the corporation.
Object - what the goals and objectives of the corporation are, that is the purpose of their existence.
Members - who will be members of the corporation? Publicly held corporations have shareholders while privately held corporations have limitations on members.
Officers - this would be the official officers of the corporation including President, Vice President(s), Treasurer and Secretary. The corporation may also declare other officers as they deem necessary for the proper operation of the business.
Meetings - corporations are required to hold at least one annual meeting.of all shareholders. Other meetings deemed appropriate by the corporation may be included in the bylaws.
Executive Board - the corporations executive board who follows through on recommendations of the board of directors.
Committees - committees may include any committee that the corporate board determines may be needed for the proper operation of the company. Typically there is at least a finance committee and there may be additional committees that may not be included in the bylaws by including specific language indicating that this is possible.
Parliamentary Authority - most corporations will revert to Roberts Rules of Order to determine how meetings are run and recorded. Additional authority should be included in the bylaws or a clause should be included that offers other alternatives. Roberts Rules of Order is the standard for most corporations.
Amendments - corporate bylaws cannot be changed by a simple vote of the board of directors. The amendments must be voted on by the shareholders (owners) of the corporation at annual meetings. This clause would include how amendments may be offered, when amendments have to be presented to shareholders, etc.
Summary
Corporate bylaws will be used to help the members of the corporation provide direction. The bylaws are the road map that is provided to ensure a business continues to meet their original goals and objectives, regardless of what they may be. Voting rights, committee formation and other day-to-day functions of a business that the founders wish to have continued should all be included in the corporate bylaws versus the articles of incorporation. This will ensure that unless a proper vote of the majority of members of the corporation are in agreement that the same principles that guided the corporation at founding will continue in perpetuity.
If you want to start a corporation and need a template for corporate bylaws, find out how to skip the legal fees and incorporate on your own right here on Bright Hub.
Resources
Sources
Roberts Rules of Order: https://www.rulesonline.com/
- Legal Zoom, Stephanie Paul; What information must be put into corporate bylaws? https://www.legalzoom.com/business-law/corporate-law/what-information-must-be-put
- Findlaw Writing Corporate Bylaws https://smallbusiness.findlaw.com/business-structures/corporations/incorporate-by-laws.html
Image Credits:
- Corporate Structure: via https://www.istockphoto.com/hohojirozame
This post is part of the series: Business Ownership
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