Corporate Bylaws Explained: How to Structure Governance in Your Corporation

Bylaws decide how your company makes decisions, which is why they only matter on the days decisions are contested. Nobody reads the bylaws when a board vote is unanimous. They get read when a director resigns mid-round, when a stockholder wants to call a special meeting, or when an investor asks who has the power to amend them.

Every state corporation statute supplies default settings: quorum, notice periods, officer roles, the vote needed for an action. The bylaws are where you accept those defaults or override them, within the limits the statute allows. The charter says who owns the company. The bylaws say how decisions get made.

This article covers:

• What corporate bylaws are

• How bylaws differ from the articles of incorporation

• Whether bylaws are required

• The legal requirements in the US

• What belongs in the document, and what does not

• How bylaws are amended, and who holds that power

• The role bylaws play in corporate governance

What are corporate bylaws?

Corporate bylaws are the internal procedural rules of a corporation, adopted by the incorporator or the board rather than filed with the state. They cover how meetings are called, what counts as a quorum, how directors are elected and removed, which officers exist and what they can sign.

Bylaws sit third in the hierarchy. The state corporation statute governs, the charter governs below that, and the bylaws operate in the space those two leave open. Delaware makes the point directly in 8 Del. C. § 109(b): a bylaw may contain any provision that is not inconsistent with law or with the certificate of incorporation. A bylaw that conflicts with either one is unenforceable to the extent of the conflict.

Bylaws are procedural. They are not a mission statement, a values document or a place to record your business plan. Courts reading Delaware bylaws have described them as process-oriented, and drafting them any other way creates argument rather than clarity.

How do corporate bylaws differ from a corporation’s articles of incorporation?

• Articles of incorporation (a certificate of incorporation in Delaware, New York and New Jersey) are filed with the state and create the corporation. They carry the name, the registered agent, the corporate purpose, and the number and par value of authorized shares. They are public, and amending them takes a state filing plus a stockholder vote.

• Bylaws are internal. They are not filed with the state, they can usually be amended without a filing fee, and they deal with process rather than ownership.

The division matters most on share rights. The terms attached to a class of stock, including liquidation preference, conversion and voting power, live in the charter. A bylaw purporting to create or change those rights does not do the job. If you take an investment and the preferred terms appear only in the bylaws, something has gone wrong.

Eager to understand more about articles of incorporation? Head to our deep-dive by legal expert, Chris Spillman.

Are bylaws required for a corporation?

Mostly yes, though the statutes get there by different routes, and the practical answer is that you adopt them regardless.

• Delaware: 8 Del. C. § 108 has the incorporators or initial directors hold an organization meeting to adopt bylaws, and § 109 governs them afterwards. A corporation without bylaws is not properly organized.

• New York: BCL § 601(a) states that the initial bylaws are adopted by the incorporators at the organization meeting.

• California: Corp. Code § 212(a) requires the bylaws to state the number of directors, or a stated minimum and maximum, unless the articles do it instead. Outside that, California supplies statutory defaults for most of what bylaws usually cover.

Skipping them creates practical problems before it creates legal ones. Investors ask for the bylaws in diligence, banks ask for them when you open an account, and a signatory dispute is much harder to resolve when nothing says who holds the authority to sign.

What are the legal requirements for corporate bylaws in the US?

Requirements are thinner than most founders expect, and the flexibility runs the opposite way to what you might assume. Delaware and California both allow wide latitude, and California’s only mandatory content is the number of directors. The work is not in meeting a statutory checklist. It is in choosing which statutory defaults to keep.

Three constraints apply everywhere:

1. No conflict with the statute or the charter. A bylaw cannot give the board a power the statute reserves to stockholders, and it cannot contradict the certificate of incorporation. Where it tries, the higher document controls.

2. Consistency with what you actually do. Bylaws that set a quorum you never meet, or require notice you never give, are worse than none. A counterparty can point to your own document to argue that a board action was invalid.

3. Disclosure if you go public. Bylaws are not filed with the state, but a company registered with the SEC files them as an exhibit under Item 601(b)(3) of Regulation S-K, which puts them on the public record alongside the charter.

Key components of corporate bylaws

• Stockholders’ meetings: annual and special meetings, who can call a special meeting, notice periods, quorum, and the vote required to act. Who can call a special meeting is the provision that becomes interesting during a dispute.

• Board of directors: the number of directors or a range, how vacancies are filled, how directors are removed, notice for regular and special board meetings, quorum, and action by unanimous written consent.

• Officers: which offices exist, who appoints and removes them, and what each is authorized to sign. Delaware permits one person to hold any number of offices under 8 Del. C. § 142, which suits an early-stage company with two founders.

• Stock certificates and transfers: whether shares are certificated or uncertificated, how transfers are recorded, lost certificate procedures, and record dates. The rights attaching to each class belong in the charter, not here.

• Indemnification and advancement: indemnification of directors and officers under 8 Del. C. § 145, and, separately, advancement of legal expenses as they are incurred. Advancement is the provision experienced directors check first, and it has to be stated, because indemnification alone does not deliver it.

• Committees: how the board forms an audit, compensation or other committee, and what it may decide without full board approval.

• Forum selection: Delaware corporations may designate a forum for internal corporate claims under 8 Del. C. § 115, though the provision cannot exclude the Delaware courts.

• Advance notice provisions: deadlines and information requirements for a stockholder nominating a director or proposing business. These look like housekeeping until a board seat is contested.

• Amendments: who may amend the bylaws and by what vote, read alongside the charter and the statute described below.

Two things do not belong in the bylaws. Class rights go in the charter. And the ability of stockholders to act by written consent is a charter-level switch in Delaware under 8 Del. C. § 228, which is a useful reminder that bylaws cannot fix everything.

How can a corporation amend its bylaws?

Amendment authority is the single most misunderstood part of the document, so here is the Delaware rule. Under 8 Del. C. § 109(a), once a corporation has received any payment for its stock, the power to adopt, amend or repeal bylaws sits with the stockholders entitled to vote. The certificate of incorporation may also confer that power on the board, and most do. Conferring it on the board does not divest the stockholders of theirs.

That means the two holders of the power run concurrently. Your board can amend the bylaws because the charter says so. Your stockholders can amend them back because the statute says so. New York reaches a similar result in BCL § 601(a), where a bylaw adopted by the board can be amended or repealed by the stockholders.

Mechanically, the process is short. Someone proposes the change, the board or the stockholders approve it by the vote the bylaws specify, and you record the result in a written consent or in minutes. No state filing is required, and there is no fee.

Keep the record clean. Diligence requests ask for the bylaws as currently amended, and an investor who finds three undated versions and no consents will ask questions you would rather not spend the round answering. Our corporate team can review what you have and reconcile it against your charter.

What role do corporate bylaws play in governance?

Bylaws set the procedural floor. They tell a director whether a meeting was properly called, tell an officer what they can sign without board approval, and tell a stockholder what it takes to put a resolution in front of the company. Procedure is what makes a decision hard to unwind later.

They are not the whole governance picture. In a venture-backed company, the provisions that decide real questions, including board composition, protective provisions and drag-along rights, usually sit in the voting agreement and the investors’ rights agreement rather than the bylaws. Reading the bylaws alone will not tell you who controls that company.

Where bylaws do earn their keep is at the messy edges: a resignation at an awkward moment, a deadlocked founder vote, a director asking who pays their legal fees. Those situations are procedural, and clear procedure is what stops them from becoming a dispute.

The takeaway

Bylaws are cheap to adopt and easy to ignore, and the cost of ignoring them lands years later on the day something is contested. Draft them to match how your company actually operates, keep them consistent with your charter, and know which of your two power centers can change them.

Starting from scratch, or overdue for a review? Get in touch with our US team.

This article is general information and not legal advice for any specific situation.