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Businesses and Bylaws–Who Should Have Them?

August 12, 2020

Businesses are the foundation upon which American society and culture rests. In a highly capitalistic market, businesses are essential to the operation of the economy. As a result, there are many things that even small businesses should do to secure their futures. In particular, all businesses should establish a set of bylaws to adequately guide the business as it grows and develops. There are five things that business owners should know about bylaws before drafting: 

  1. What are Bylaws? Bylaws are the written rules that govern the day-to-day operations of an organization. More specifically, they define the responsibilities for the important positions within a company and explain how the company is to react in a variety of situations. 
  2. Are Bylaws Required? In some states, bylaws may be required as part of the process for obtaining a business permit from the state. Likewise, some states require particular types of organizations to draft bylaws, while others have a choice. For example, Colorado requires non-profit organizations to establish bylaws before filing for tax-exempt status, but does not force for-profit businesses to do the same. Ultimately, such requirements are up to the discretion of the local lawmakers so new business owners should research their local statutes before proceeding.
  3. What are the Benefits of Bylaws? Once a business adopts bylaws, they become legally binding for the members of the organization and its shareholders. Bylaws can resolve issues ahead of time, provide a process for easy disputes, establish member rights beforehand, and demonstrate legitimacy to banks and other organizations. As a result, these benefits allow the organization to operate more smoothly and promote internal sustainability. However, although bylaws do provide a variety of benefits, their legality means that the organization can be sued for a violation of these bylaws. 
  4. Who Drafts Bylaws? Bylaws can be drafted by a number of professionals. They can be drafted by the incorporator or the small business owner. That owner can also delegate the task to a board of directors or a designated committee. Many organizations use their first board meeting to draft bylaws for the company. 
  5. What Information Should be in the Bylaws? Every business’s bylaws are unique to that company’s specific needs. Typically, bylaws include organization information, board composition, shareholder rules, resolution rules, officers, meetings, and procedure for amendments. Depending on the nature of the businesses, every company’s bylaws may look extremely different. However, every set of bylaws should contain the basic information of the company for legal purposes. 

As businesses grow nationwide, it is imperative that these organizations utilize all the appropriate avenues available to them for proper establishment. As a result, all businesses should adopt a set of bylaws with the assistance of a lawyer, such as a business lawyer from Brandy Austin Law Firm, PLLC, to guarantee smooth operations.