What Is the Difference Between Bylaws & Covenants?

By Stephanie Reid

Bylaws and covenants are both types of promises made between parties with possible consequences for a breach of the promise. The major difference between these two concepts lies in the nature and format of their creations, as well as the typical context in which both are enacted. While bylaws are generally mutually agreed upon governing rules for an organization or business, covenants are usually long-term promises to do something or refrain from action that may last for several generations.

Bylaws and covenants are both types of promises made between parties with possible consequences for a breach of the promise. The major difference between these two concepts lies in the nature and format of their creations, as well as the typical context in which both are enacted. While bylaws are generally mutually agreed upon governing rules for an organization or business, covenants are usually long-term promises to do something or refrain from action that may last for several generations.

Purpose of Bylaws

Corporations, non-profit organizations or any similar group of people who are working together for a similar purpose and need a governing set of rules use bylaws. Bylaws typically address issues like membership, annual dues, the roles and duties of the governing board and reasons why a member may be disciplined or excluded. When an organization gets started, the founding members decide on the bylaws following mutual input and discussion. Failure to abide by a bylaw will likely result in some sort of discipline as indicated by the bylaws themselves, as opposed to personal liability or legal recourse from a tribunal.

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Purpose of a Covenant

A covenant, by contrast, is a more formal promise or contract between two parties to engage in, or refrain from, certain conduct or behavior. The term itself is considered Biblically based, although it has several applications in modern law. A covenant promise is a more formal arrangement than a bylaw and is generally used between two individuals as opposed to used in a larger business or organization sense. Breach of a covenant can lead to personal liability or other consequences as decided upon by the parties. Covenants are generally put in writing and may be used in a property deed or contract.

Examples of Bylaws

Within a set of bylaws is usually a section pertaining to the course a person must take to become a member within the organization. For instance, the prospective member may need to enroll in training or obtain approval from a majority of current members. Another common bylaw often involves the payment of annual dues to a corporation to maintain membership. Bylaws also often set forth discipline procedures for members, which may include private admonition, censure and eventually termination from the organization.

Examples of Covenants

Covenants are commonly found in deeds to property subject to restrictions enforced by a homeowners' association. While a bylaw only pertains to the individual entering into membership in the organization, a covenant may actually bind all successive property owners. Covenants are also used in contracts to ensure that parties adhere to the provisions of the agreement. A breach of contract covenant can result in a lawsuit for damages or termination of the agreement.

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Difference Between Amended & Restated Bylaws

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Procedure for Changing Bylaws

Whether your company is for-profit or a nonprofit, chances are there will come a time when you will want to amend its bylaws, the internal guidelines and procedures that govern its operation. Following the proper amendment procedures is essential to adopting and later enforcing changes to this important corporate document.

Non-Profit Bylaws

The bylaws of a non-profit organization guide its directors, officers, and employees on how to conduct themselves and the business of the organization. If the non-profit wants to maintain its tax-exempt standing, these bylaws must be drafted subject to standards established by the tax code and applicable state law. Although bylaws may be amended, it is important that the rules are drafted well to ensure that the non-profit runs smoothly.

Forming LLC Procedures

The limited liability company (LLC) is a popular form of business organization. While many entrepreneurs gravitate toward the LLC organization because of its flexibility in tax treatment and relative simplicity in terms of operation compared with other corporate forms, the most frequent reason business owners choose to organize as an LLC is the opportunity to receive limited liability for acts committed by other participants in the business. This limited liability becomes endangered, however, when members do not follow their state's rules on setting up the LLC. Fortunately, LLC organization is relatively simple in all jurisdictions.

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