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Key Takeaways
- Bylaws are the internal rules for a corporation’s governance.
- These bylaws are required by law in many states and countries.
- Bylaws describe how corporations are organized and managed and give power to elected directors.
- They’re private and don’t need to be submitted to government agencies.
Company or corporate bylaws are a key element of corporate governance. Here we explain how they work and when you should implement them.
What are Bylaws?
Corporate bylaws are the internal rules for the governance of an incorporated company. These rules typically lay out the composition of the company’s board of directors and officers, how they’re elected, when and where shareholder meetings are held, rules for meetings, voting entitlements of shares, accounting methods, and other important details. While many jurisdictions, including over 30 states in the US, require bylaws, these are never considered public documents. Instead, they are privately owned by the company and do not need to be filed with any government agency.
Bylaws are essential for the good governance of any company. They help to clarify roles and responsibilities, resolve disputes between directors, create protocols for running effective meetings, and keep accounting transparent. Bylaws let everyone involved know who has which powers, how those powers can be attained through elections, and any limits on the terms of directors, which also limits their powers over time. Thus, they create checks and balances within the company to help protect the interests of all involved in its operation.
Setting up or restructuring a company in China? MSA helps align governance documents with PRC Company Law requirements. Message →
Key Components of Bylaws
The most common sections to include in corporate bylaws include:
- Basic company information: The company’s name and address should be identified, as well as its structure as a public or private enterprise.
- Statement of purpose: The company’s purpose should be clearly stated to give direction to all its actions. This statement can include specific objectives that will define the company’s operations.
- The board of directors: The bylaws should describe the composition of the board, including specific roles and their associated duties. They should also explain how and when board members can be elected and any limits to their terms. The procedure to replace board members should be included, as should rules for when, where, and how the board will meet.
- Management and officers: The company’s management structure should be clearly defined, as should the description of the various offices involved, their roles, and powers. It should also be made clear how these officers can be appointed by the board and how they must report to it.
- Shareholder meetings: Part of good corporate governance is involving shareholders in decision-making. This normally comes in the form of an annual meeting in which shareholders can vote to elect the board of directors and other important issues. The bylaws should describe when and where these meetings will take place, as well as the procedural rules for these meetings. Quorum protocols should also be established to make it clear how many shareholders’ votes it will take to elect board members.
Corporate Bylaws vs Articles of Association (China)
| Governance Area | Corporate Bylaws (Common Law) | Articles of Association (China) |
|---|---|---|
| Legal nature | Internal governance document | Statutory governance document under PRC Company Law |
| Filing requirement | Not filed with authorities | Filed with the market regulation authority (SAMR) |
| Board structure | Defined internally by the company | Defined by Company Law and Articles of Association |
| Shareholder meetings | Governed by bylaws | Governed by Articles of Association |
| Amendment process | Shareholder or board resolution | Shareholder resolution plus formal registration |
| Public access | Private document | Partially public through registration filings |
Process of Drafting and Adopting Bylaws
Bylaws are usually drafted through the actions of a company’s founders and original owners. After its articles of incorporation are filed, a company will need to hold an organizational meeting. In this, the articles are ratified, the board of directors is elected, shares are issued, and the corporate bylaws are adopted. If, for any reason, the bylaws are not adopted, they may need to be amended and then adopted by vote at a later date.
Companies’ bylaws are often created with the help of legal teams. While this is not necessary since they are internal documents, it may help to ensure that the bylaws are clear, comprehensive, and enforceable. Often, corporations are controlled by statutes enforced by the jurisdictions in which they’re incorporated. A corporation’s bylaws will likely include these statutory rules even in their original wordings. They can never include bylaws that might contradict these statutory rules. In the case of optional or flexible rules, or those not included in statutes, each corporation may write its own rules. These are normally based on standard examples from books, other corporations, or even templates and are only slightly changed to adapt them to the company’s specific needs.
Importance of Regularly Updating Bylaws
Bylaws must include methods for amending and updating individual rules. Changes can be made as long as they follow the rules laid out in the bylaws and don’t contradict legal statutes or the company’s articles of incorporation. Bylaws are often changed to ensure compliance with changing laws or to reflect organizational changes within the company.
Corporate Bylaws for Good Governance
Bylaws are internal rules for the governance of corporations. Whether or not they’re mandated by law, they’re still highly important and very useful. They give companies direction, structure, and rules to follow so that directors and officers are required to act in the best interests of their shareholders.
For expert advice on your corporate bylaws, get in touch with MSA’s incorporation experts.
Company bylaws in China formalize governance, director roles, shareholder rights, and dispute resolution—requirements that vary significantly between wholly foreign-owned enterprises, joint ventures, and domestic companies with different regulatory obligations. Generic bylaws often miss industry-specific mandates or fail to allocate authority appropriately to decision-makers. MSA Asia drafts bylaws tailored to your entity type and operational structure. Talk to our team on China corporate services.
A company’s articles of incorporation are a lot less complex than bylaws. They normally include only basic information about the company including its location, industry, and its share structure. These articles are filed with the appropriate government agency to create a corporation. Bylaws, on the other hand, are much more extensive rules that describe the governance of the corporation. Unlike the articles of incorporation, these bylaws can also be amended over time to reflect the changing needs of the company. Corporate bylaws are normally adopted at an organizational meeting after the articles of incorporation have been filed.
In some jurisdictions, including 31 states in the US, all corporations must have bylaws. If they don’t, they can face penalties or even have their registration revoked. In others, however, bylaws are not mandated by law. However, courts may see a lack of bylaws as one indication that a company is acting as an extension of the owners(s) and may rule that this company is simply an alter ego, piercing the corporate veil and potentially making the owner(s) liable for the company’s debts. Without bylaws, corporations are likely to be poorly governed and may suffer a lack of clear direction and organization.
