How to Develop a Charter & Bylaws for a New Organization

By Wayne Thomas

Starting a new business can be an exciting adventure. At the same time, you must address many important formalities at the outset of operations to ensure that your business both complies with the law and runs smoothly. If you decide to form a corporation, having a properly drafted charter and bylaws will help put your company on the path to success.

Starting a new business can be an exciting adventure. At the same time, you must address many important formalities at the outset of operations to ensure that your business both complies with the law and runs smoothly. If you decide to form a corporation, having a properly drafted charter and bylaws will help put your company on the path to success.

Charter Overview

A charter, also referred to as a company's articles of incorporation, articles of organization, or certificate of incorporation, acts like a constitution for your corporation. Although the document must contain certain required information under state law, it is typically short and concise. For your convenience, many states offer free fill-in-the-blank charter forms that can be obtained in person or online through the Secretary of State's website. Once your charter is complete, the document needs to be filed with the Secretary of State. You also usually need to pay a filing fee, and this amount can vary from state to state.

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Charter Contents

State law outlines the information that must be included in your charter. Because there can be some variation, you may wish to consult an attorney to make sure that your charter conforms to the laws in your state if the Secretary of State does not supply the forms. In most states, you need to include the name of your business, its legal address, and the business purpose of the company, which can usually be very broad, such as to engage in "all lawful business." You must also supply the name and address of your registered agent, meaning the person appointed to receive official correspondence from the state. State law may also require you to name the person who formed your corporation, called an incorporator, and provide the names of your initial directors. The directors will make up a board that is charged with overseeing the management of the company and be vested with the authority to make major business decisions. You may also be required to note how much stock your business is authorized to issue and the lowest price or "par value" at which it can be sold.

Bylaws Overview

In contrast to a corporate charter, the bylaws of an organization set forth the internal rules and procedures for how the business will operate. The bylaws are not always explicitly required by state law but are highly recommended. Once the corporation has drafted the bylaws, they are generally adopted at the first meeting of the board of directors. Bylaws are not filed with the state but are instead kept on file with the corporation.

Drafting the Bylaws

While there is no set form that bylaws must take under the law, there are some common issues that these documents usually touch on. First, bylaws often establish the size of the board of directors, determine the election procedure, and set the length of the directors' terms. They also cover what offices the corporation will have, such as president, vice president and secretary, and the responsibilities of those selected for these roles. Bylaws also usually state how and when board and shareholder meetings can be called and what constitutes a quorum for voting purposes.

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What Belongs in the Bylaws?

References

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