Ready to start your business?
Before you do, you must consider two important legal obligations: articles of incorporation vs bylaws.
But what’s the difference between them, are bylaws the same as articles of incorporation, and how should they be used?
Key takeaways
- Articles of incorporation are legal documents that should be created when a business is first formed.
- Company bylaws are internal rules that govern how an organization’s board of directors will operate.
- Both documents will usually need to be retained (this is a legal requirement in many jurisdictions).
- PandaDoc is on hand to help you craft compliant documents.
What are articles of incorporation?
Let’s start with the definition of articles of incorporation.
These are a set of documents that are submitted to a government body when a business is created. Essentially, they enable an organization to be recognized in its local area.
In the United States, companies file articles of incorporation with their local secretary of state. It doesn’t matter which state you’re based in; if you’re setting up a new company, you must file these.
Creating articles of incorporation provides key protections for business owners.
For example, you’re shielded should your business incur debts.
They also enable organizations to raise capital by selling stock.
These articles are an important part of the public record.
They provide transparency around your business’s internal affairs, and also answer key questions of public interest, providing information such as:
- The purpose of your organization
- The maximum number of shares the company can legally issue
- A description of common stock (aka the equity ownership of the corporation)
If an individual wants to obtain any of this information, they can do so by accessing public records.
Articles of incorporation requirements
Articles of incorporation can encompass many different kinds of documents.
Each will provide broad information about an organization.
It should be noted that required articles of incorporation may vary from state to state.
That said, below are some general examples of what you’re likely to find in them.
- The name and address of an organization
- Company contact details
- Tax information, such as an ID number
- A list of important members of the company and their contact details
- The date the business was incorporated
- The business’ legal structure (e.g., sole proprietorship, limited liability companies, partnerships, etc)
- The business’ duration (for temporary businesses)
- Files detailing the limitations on liability for the company director
- Any other optional records the business decides to submit
In some instances, your local secretary of state’s office may provide you with a template to help you file these documents.
In others, it might be helpful to invest in contract management software to guide you through this process.
What are bylaws?
Now, let’s move on to the bylaws meaning. Bylaws (aka company or corporate bylaws) are internal rules set by an organization.
They govern how it should conduct its day-to-day affairs.
It should be noted that bylaws and employee guidelines are slightly different documents.
The latter are generally directed at staff, the former apply to board members specifically.
There are multiple reasons why businesses might decide to create by-laws.
The biggest is that in many US states they’re a legal requirement. If you don’t maintain a set of internal regulations, your organization could find itself in a lot of trouble.
Legal obligations aren’t the only reason for creating them, though.
Most organizations also see them as a useful tool.
They help guide board members in making decisions and can clarify the organization’s ethical and moral standards and general approach.
A big advantage of using bylaws is that they help provide consistency and reduce arguments.
There’s no room for board members to disagree about how certain actions should be carried out, as instructions and procedures are clearly laid out in them.
As with articles of incorporation, the creation of bylaws is a key stage in the early lifecycle of a business. They’re usually among the first documents produced by the company.
What do corporate bylaws cover?
Some states (e.g., New York) have no specific guidelines for what should be included in bylaws.
Others (such as Delaware) have a long list of requirements.
Interestingly, in certain states, you don’t need them (though you may still wish to create them for the reasons listed earlier).
As such, it’s hard to provide a definitive list of requirements for bylaws. However, it’s common to include:
- The name and location of the organization
- Whether the company is private or public
- A list of directors on the company board
- How new directors will be elected to the board
- The length of terms for directors
- Information about how shareholder meetings will be conducted
- A maximum or minimum number of directors that can be elected to the board
- The responsibilities of each director
- Information about how bylaws can be amended
How the differences between bylaws and articles of incorporation affect their usage
You may have noticed some overlap between articles of incorporation and bylaws.
While the two share some similarities, the difference between bylaws and articles of incorporation is that they’re used for markedly varying purposes.
So, let’s now explore some of the ways in which bylaws vs articles of incorporation differ.
Public vs internal records
One key difference between articles of incorporation and bylaws is how the two documents are filed.
Articles of incorporation are public records that need to be filed with your secretary of state.
Bylaws, on the other hand, are regarded as private records.
There’s no requirement to file these publically. However, the board of directors must keep clear records of them as these may need to be shown during an audit.
Note: Some secretaries of state will accept bylaws of a corporation. In this instance, it’s your organization’s choice if it wants to make its rules part of the public record.
Fees
When filing articles of incorporation, there is an associated fee.
This can range from anywhere between $100 to $250 depending on the state in which the business operates.
Luckily, there are no fees associated with creating bylaws for a corporation.
Flexibility
As mentioned, articles of incorporation must align with strict state laws.
These will vary depending on your location.
One universal requirement is to state the purpose of the organization.
This doesn’t need to be particularly detailed.
In fact, many businesses choose to keep the description deliberately vague.
This gives them more flexibility when developing their business strategy.
For example, a business might say its goal is “to carry out legal activities.”
This is generally deemed acceptable for corporate purposes.
Bylaws give much greater freedom.
While some states stipulate certain measures to be included, businesses can generally choose what they want to feature.
Legal uses
Both documents can be useful in legal scenarios.
Articles of incorporation can help prove an organization has followed the laws of the state.
Bylaws, on the other hand, can provide evidence of whether a company has acted according to its internal rules.
Can you make changes to articles of incorporation and bylaws?
Any changes you make to articles of incorporation need to be in line with state laws, and each locality will outline its own procedure for making modifications.
This might involve a compulsory stakeholder meeting to approve changes.
Such regulations must be followed if your articles of incorporation are to remain legally compliant.
Bylaws, on the other hand, provide more flexibility.
Organizations can outline their own amendment process, and this can usually be carried out without the need for a voting session.
Do bylaws and articles of incorporation apply to non-profits?
In line with other companies, non-profits should also create articles of incorporation and bylaws.
There are, however, some additional factors that these organizations must consider.
Firstly, they must ensure that none of these documents interfere with their non-profit status.
This means including a statement that clarifies their function as a charitable organization.
When setting up bylaws, there are also various elements for non-profits to think about.
These include:
- Governance. Who governs the non-profit (e.g., a board of directors, member-led voting, etc)?
- Voting rights. If a non-profit has a board of directors, what’s the process for electing them?
- Checks and balances. Who oversees the creation of legal documents, transactions, and the development of other important procedures.
- Membership. How can people become members of the non-profit? What rights do members have?
Master bylaws and articles of incorporation formatting with PandaDoc
Both articles of incorporation and bylaws are essential legal documents. Neither can be overlooked if you’re setting up a new organization.
But getting these documents right isn’t easy.
As we’ve explored, each state has its own set of legal requirements that you must comply with, and any issues encountered can prevent you from properly establishing your business.
Luckily, PandaDoc provides a simple solution.
Our contract management software gives you the tools to create the documents you need. With instant access to legally compliant templates, you can get straight to work.
In three simple steps, you can create, execute, store, and manage contracts, helping you produce these vital documents with ease.
With your articles of incorporation and bylaws sorted, you can get to work setting up your organization. Why not try our free 14-day trial today to get you started?
Disclaimer
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