How to Design a C Corporation Agreement

By Larissa Bodniowycz, J.D.

How to Design a C Corporation Agreement

By Larissa Bodniowycz, J.D.

Corporations are C corporations unless they file an S corporation election with the Internal Revenue Service. Both C corporations and S corporations should create and adopt an agreement that sets out rules for the operation of the corporation. This agreement is called the bylaws of the corporation. All states allow and honor bylaws, though only some require written bylaws.

Businesspeople gathered around table with laptop and stationary supplies

A corporation should draft and adopt bylaws when it begins operating and then modify them as needed throughout its existence. A corporation can create valid bylaws in a few easy steps.

1. Decide who will write the bylaws.

Anyone the corporation decides on can draft the bylaws. The corporation can select one or more of its founders to create the bylaws, hire an attorney to draft them, or as is becoming increasingly common, use an online legal service provider to design the bylaws. There is no right choice. The best drafter for bylaws depends on the corporation's needs, budget, and the experience of its owners.

2. Write the bylaws.

There is no single form used for all bylaws, but bylaws typically follow an outline format that divides the bylaws into articles. Each article covers a different topic and may be divided into subsections as needed. Bylaws typically include articles that cover at least the following topics:

Office Location

An article setting out the corporation's office location is typically one of the first articles. It can state a specific address or more generally provide that the corporation's primary office will be within its state of incorporation. The article should allow for the modification of the primary office.

Stock Certificates and Ownership

Bylaws usually include an article that addresses whether the corporation will issue shares electronically and that lays out how the corporation will record and track ownership of shares.

Board of Directors

The board of directors article should set out the number of directors, the election process for directors, how long directors' terms last, what happens if a board member resigns, and other rules for the board. Some state laws require a minimum number of directors. The bylaws should be consistent with state law.

Officers

The officers' provision is analogous to the board of directors' article. It should include information about the number and titles of officers, the election and removal processes for officers, and each officer's general duties.

Meetings

Bylaws should include how often shareholders and the board of directors hold meetings as well as notice and voting requirements for those meetings. The articles governing shareholders and board members can include these provisions, or they can stand alone in an article covering meetings only.

Indemnification

If the corporation plans to indemnify its officers and directors for actions taken on behalf of the corporation, the bylaws should include an indemnification article. The indemnification article should also lay out what actions will not be covered—for example, intentional torts by officers or directors.

Amendment

Bylaws should state how they can be amended. Amendment usually requires the vote of a certain percentage of shareholders, the vote of a certain percentage of board members, or sometimes both.

Miscellaneous

A corporation can also include a catch-all article to cover rules that do not naturally fit into the subject matter of other articles.

3. Adopt the bylaws.

Drafting bylaws is not enough. To be valid, enforceable, and, thus, useful to the corporation, the corporation must formally adopt them. This is a crucial step that small businesses often overlook in the chaos of starting a new corporation.

A corporation may adopt initial bylaws in one of two ways. The first option is to have the initial board of directors adopt the bylaws at their first meeting or by unanimous written consent instead of a meeting. The second option is to have the incorporator, the person who created the corporation, adopt the bylaws in signed written consent. If the incorporator adopts the bylaws, the corporation's initial board of directors usually later affirms and adopts them.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.