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If you’ve ever been interested in the happenings of big corporations or followed one’s messy dissolution in the news, you’ve probably heard of bylaws and articles of incorporation.
Additionally, if you’ve considered setting up your own business, then you might also be thinking of bylaws of your own or whether or not you need articles of incorporation.
All this is to say: What’s the difference between the two?
In this article, we’ll be diving into what makes for a good bylaw, when you need articles of incorporation, and plenty more, including:
- The definitions and purpose of bylaws and articles of incorporation
- When you need bylaws and when you need articles of incorporation
- The required documents for each
By the end, you’ll understand how bylaws and articles of incorporation work and why you need to be thinking about them.
- Corporate bylaws are the rules of an incorporated business devised and adopted by its board of director.
- Bylaws are created by the board of directors to cover regulations such as the location of premises, allocation of voting shares, powers, and duties, among other aspects.
- Articles of incorporation are the legal documents that establish the incorporation of a business.
- Articles of incorporation are filed with your local state regulatory body.
Corporate bylaws are the governing rules of an incorporated entity. They set out the leadership structure, the allocation of voting shares, the duties and powers of leadership, as well as many other direct rules that outline how the business is to be run.
Corporate bylaws are only required for an incorporated business. Only incorporated businesses need to have bylaws because an incorporated entity has more than one owner.
Bylaws ensure a smooth delivery of service and operations, and they ensure that when any members leave there is a reliable transfer of power.
Corporate bylaws can be whatever you need them to be to suit your business, but the above-mentioned topics are usually the starting place for any corporate bylaws.
Bylaws exist to protect shareholders from the reckless actions of directors who may treat a business as a personal fiefdom.
As such, if a board of directors fails to comply with the corporate bylaws, they open themselves up to civil suit from the shareholders.
Requirements & Documents
- Bylaws are often a requirement of your state, so you may need to file copies with your state business regulator.
- Bylaws are developed by the business when it is incorporated, and you can find many good outlines of key bylaws to include.
- Bylaws must be provided to shareholders on request so that they are aware of company rules.
- Bylaws might be needed when setting up a business bank account, so you may need to provide them.
Articles of Incorporation
Articles of incorporation are the documents that legally record the creation of a corporation with your state government.
Without articles of incorporation, your state government will not recognize your business as a corporation and you will not be able to operate as an incorporated entity.
Articles of incorporation follow a basic format. Different states offer different benefits for registering a business within them, and you must incorporate your business in one of them.
You’ll need to do your research to find out where to go to best suit your needs.
You must define your corporate structure and establish who holds what positions within it, as well as select an original business name to be incorporated under.
This means all your legal and corporate documentation and public records will be attached to this name, providing a continuous chain of provenance for any records.
Finally, you will need to appoint a registered agent to act as the point of contact between the government and your business.
Their job is to transfer legal documents and records and represent the business in the incorporation process.
Requirements & Documents
Articles of incorporation require a few pieces of basic information:
- Business name and home state
- Members’ names
- The name of your registered agent
- Corporate structure
- Type and number of shares distributed
What are the differences between bylaws and articles of incorporation?
As you can see, articles of incorporation and corporate bylaws are fundamentally different documents.
Articles of incorporation are external documents that are required by your state government in order to officially register the incorporation of a business.
In contrast, corporate bylaws are internal rules that govern how your business operates and how the different responsibilities and duties of its members are executed.
To help you remember these distinctions, we’ve put together a quick reference table of a few key points:
|Articles of Incorporation
|Internal business document
|Filed with state regulators
|Free choice of bylaws
|Follows a prescribed outline
|Distributed to shareholders
|Not required for distribution
|May not be legally required
|Legally required for incorporation
That’s about all you need to know about corporate bylaws and articles of incorporation.
As you can see, they are two distinct documents with their own requirements and rules, as well as their own specific formats.
It’s also important to note that while articles of incorporation are strict documents that are required to follow a prescriptive course, corporate bylaws are much looser and can be whatever is right for your business.