Keith Mack
When forming a business, it is crucial to understand the difference between articles of incorporation and bylaws as they serve different purposes. Articles of incorporation are the official formation documents that must be filed with the state to start a new business and legally recognize it as a corporation. On the other hand, bylaws are a set of internal rules that govern how the company should be run and outline the procedures for managing the corporation. While articles of incorporation are public records, bylaws are considered private and are not required to be filed publicly. However, both documents are essential in establishing and governing a business entity, providing a framework for its operation, and ensuring compliance with legal requirements.
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What You'll Learn
- Purpose: One establishes a legal entity, the other guides the board
- Filing: Articles are filed with the state, bylaws are internal but may be shared
- Amendments: Articles need shareholder approval, bylaws are changed by the board
- Compliance: Articles ensure regulatory compliance, bylaws ensure internal compliance
- Non-profits: Non-profits need bylaws to maintain tax-exempt status
Purpose: One establishes a legal entity, the other guides the board
When forming a company or any other legal entity, it is important to differentiate between articles of incorporation and bylaws. While both are crucial, they serve distinct purposes. One establishes the organisation as a legal business entity, while the other acts as a guiding document for the board of directors and leadership team.
Articles of incorporation are a set of formal documents filed with the secretary of state or equivalent local state authorities. These documents typically include the company's name, purpose, and the process by which a board of directors is elected. They establish the legal existence of a corporation and are often referred to as the constitution of the corporation. Articles become public documents once filed with the state and are usually subject to a filing fee. They provide a broad framework for the establishment of the organisation and must comply with state laws and regulations.
On the other hand, bylaws are the internal rules and procedures that govern the day-to-day functioning of an organisation. They are like an operating manual that guides the board of directors in making decisions and clarifies the organisation's ethical and moral standards. Bylaws are not typically filed with the state and are considered private documents. However, they may be shared with third parties, such as investors, and can be created before or after the filing of articles of incorporation. Bylaws are flexible and can be amended or revised with the approval of a majority of the board members.
While articles of incorporation establish the legal entity of the organisation, bylaws guide the board by providing detailed rules and procedures for managing the corporation's operations. Articles create the foundation and structure, while bylaws ensure the smooth functioning and decision-making of the board within that established entity.
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Filing: Articles are filed with the state, bylaws are internal but may be shared
When forming a company, it is crucial to understand the differences between articles and bylaws. Articles of Incorporation establish the legal existence of a corporation and are filed with the state, usually with the Secretary of State. These documents typically include the company's name, purpose, and the process of electing a board of directors. They define the basic details of who is involved in the company and what they will do. Once filed, they become public documents.
Bylaws, on the other hand, are internal documents that are not usually filed with the state. They are like an operating manual that defines how the corporation is internally governed. Bylaws are a set of rules and procedures that guide the board's functioning and decision-making. They ensure accountability, promote transparency, and prevent internal disputes. While not filed with the state, bylaws may be shared with third parties, such as investors, who often review them to assess risk and governance structure.
Articles of Incorporation provide a broad framework for the establishment of a corporation, while bylaws are the detailed rules that must be consistent with the articles. Articles of Incorporation are subject to strict state laws and can only be amended with shareholder approval. Bylaws, however, offer more flexibility and can usually be changed by the board without a voting session.
It is worth noting that bylaws are especially important for non-profit corporations seeking tax-exempt status. While some states do not require nonprofits to file bylaws, they must be submitted to the IRS during the tax-exemption application process.
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Amendments: Articles need shareholder approval, bylaws are changed by the board
Amendments to articles of incorporation and bylaws are not the same and require different levels of approval. Articles of incorporation are filed with the state and become public documents. They establish the legal existence of a corporation and include the company's name, purpose, and process by which a board of directors is elected. Any changes made to the articles of incorporation must be in line with state laws. Each locality will outline its procedure for making modifications, which may include a compulsory stakeholder meeting.
On the other hand, bylaws are internal documents that are not usually filed with the state. They are like an operating manual that defines the rules and regulations that the board of directors follows. Bylaws can be created either before or after the company files its articles of incorporation. They are important for non-profit corporations seeking tax-exempt status, as they will need to submit a copy of the bylaws along with their application. Bylaws can usually be amended by the board without the need for a voting session. However, bylaws can only be amended or revised with the approval of a majority of the board members.
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Compliance: Articles ensure regulatory compliance, bylaws ensure internal compliance
Articles of Incorporation and bylaws are separate documents that serve different purposes in establishing and governing a business entity. Compliance is a key function of both documents, but they differ in the type of compliance they ensure.
Articles of Incorporation establish the legal existence of a corporation and are filed with the state. They are public documents that include the company's name, purpose, and process for electing a board of directors. Articles of Incorporation are like the constitution of the corporation, providing a broad framework for its establishment. They are filed with local state authorities, such as the Secretary of State, and become public documents. These documents ensure regulatory compliance by setting forth the basic details of who is involved in the company and what they will do. Companies may face fines and penalties if they fail to draft these documents or make changes that are not in line with state laws.
On the other hand, bylaws define how the corporation is internally governed and are not usually filed with the state. They are like the individual laws that must be consistent with the Articles of Incorporation. Bylaws are the set of rules and procedures that govern the day-to-day operations of an organization. They serve as a guiding document for the board of directors, providing clarity on meeting procedures, officer roles, and decision-making processes. Bylaws ensure internal compliance by providing a framework for consistent decision-making, accountability, and transparency within the organization. They can also help prevent internal disputes by providing a clear set of instructions and procedures for board members to follow. While failure to draft bylaws does not impose legal penalties, it can have far-reaching implications for corporations operating without them, including difficulties in securing funding as potential investors often review them.
Both Articles of Incorporation and bylaws play a crucial role in ensuring compliance within an organization. While Articles of Incorporation focus on regulatory compliance by establishing the legal foundation of the company, bylaws ensure internal compliance by providing a detailed framework for the organization's day-to-day operations and governance.
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Non-profits: Non-profits need bylaws to maintain tax-exempt status
Non-profit corporations need bylaws to maintain their tax-exempt status. While bylaws are not usually filed with the state, they are internal rules that govern how a company is managed. They are like an operating manual that dictates the day-to-day working of a company, including meeting procedures and officer roles. They also ensure accountability, promote transparency, and prevent internal disputes.
Articles of Incorporation, on the other hand, are filed with the state and define what a company intends to do and who is responsible for managing the business. They include the company's name, purpose, and process for electing a board of directors. These documents establish the legal existence of a corporation and are necessary for a company to become legally recognised as such.
Non-profit corporations must include certain provisions in their Articles of Incorporation and bylaws to maintain their tax-exempt status with the IRS. For example, a statement regarding the company's charitable purpose must be included in the Articles of Incorporation. Additionally, a copy of the bylaws must be signed by a corporate officer and submitted with the corporation's application for tax-exempt status.
In most cases, bylaws are created by the same person who files the Articles of Incorporation, and they are usually created either before or after the company files its Articles of Incorporation. While failure to draft bylaws does not impose legal penalties, it can have far-reaching implications for corporations operating without them. For example, companies may miss out on corporate structure opportunities or face difficulties in securing funding, as potential investors often review bylaws to assess risk.
Therefore, it is essential for non-profit corporations to have bylaws in place to maintain their tax-exempt status and ensure the smooth functioning of their organisation.
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Frequently asked questions
Articles of incorporation are a set of formal documents filed with the secretary of state. They include the company's name, purpose, and the process by which a board of directors is elected. Once approved, they become a public document and the organization becomes legally recognized as a corporation.
Bylaws are a set of rules and procedures for the internal functioning of an organization. They are like an operating manual that governs the day-to-day working of a company. Bylaws are not filed with a government agency and are kept private, except when filing for tax-exempt status with the IRS.
Articles of incorporation are like the constitution of a corporation, providing a broad framework for its establishment. Bylaws, on the other hand, are like individual laws that must be consistent with the articles. While articles of incorporation are a legal requirement, bylaws are not, although they are highly recommended as they provide structure and consistency to the organization.
Yes, articles of incorporation become public documents once approved by the state agency, whereas bylaws are kept with the company records and are not freely accessible to the public. Articles of incorporation are subject to state laws and any changes must be made in compliance with those laws. Bylaws, however, provide more flexibility as organizations can outline their own amendment processes.
