How to Design a C-Corporation Agreement

By John Cromwell

A C Corporation is the standard form of corporation and is the basis for all other corporate forms. While partnerships and LLCs form agreements to govern how their business is run, corporations use bylaws. Drafting the bylaws should be one of the first steps you take when forming the corporation, to ensure that your business is managed consistently from the outset.

Step 1

Establish the number of directors on the corporation's board of directors. The board is elected by the shareholders to oversee and hire the corporation’s officers. The board also decides matters of corporate strategy. Ensure that there is an odd number of directors on the board, to minimize the potential for tie votes. Also establish when the board will meet.

Step 2

Identify corporate officer roles. The corporate officers are responsible for managing the day-to-day activities of the business, including hiring employees and producing the corporation’s product or service. Common corporate officer roles include the chief executive officer, chief financial officer, chief technology officer, and secretary, but a corporation is not limited to these titles.

Ready to incorporate your business? Get Started Now

Step 3

Include a buyout provision if your company is not publicly traded. Small, private businesses, otherwise known as close corporations, may not want to allow outsiders gaining ownership of the business. A buyout agreement requires that departing shareholders -- or the estate of deceased shareholders -- sell the shares back the corporation or gives the corporation or other shareholders the right to buy shares before they are made available for purchase to non-shareholders.

Step 4

Establish the date of the annual shareholders’ meeting. Most states require that shareholders meet at least once a year to elect the board and address other corporate business. The bylaws should state approximately when these meetings are to be held every year.

Step 5

Determine what matters need to be voted on by shareholders and which matters only require a vote by the board of directors. Certain matters, such as corporate acquisitions and entering into a business, require formal approval by either the shareholders or the shareholders’ representative, the board of directors. The greater the effect the proposed action will have on the long-term direction of the business or on the shareholders’ ownership percentage, the more likely it should be approved by the current shareholders.

Step 6

Install a process for calling special shareholders’ meetings. If important issues come up that the shareholders must vote on, it is impractical to wait a year until the next annual meeting. Generally, a group of shareholders can call for a special meeting.

Step 7

Draft a process for amending the bylaws. All states permit the shareholder to amend the bylaws, although some states permit the board to amend as well. If the board does amend, it generally must notify the shareholders of the change and give them the opportunity to veto the amendment.

Ready to incorporate your business? Get Started Now
How to Set Up a Silent Partner for a Corporation


Related articles

How to Sell S Corp Shares to a Major Shareholder

An S Corporation is a small business of 100 or fewer shareholders where, unlike normal corporations, the business entity itself is not taxed. Each shareholder is taxed on their share of the business’s income on their personal return. Because of this advantage, the IRS places several restrictions on who can be an S Corp shareholder. Failure to meet those standards will result in the business losing its tax status. To ensure that the business does not lose its tax status, many S Corps have transfer restrictions in place regulating when its shares can be transferred.

What Belongs in the Bylaws?

Bylaws set forth the internal rules and procedures for running your corporation. There is no set form that bylaws must take under federal or state law, and you need not file these documents with any government office. However, there are several issues that should be addressed in your bylaws to ensure that your corporation operates effectively.

Corporation vs. Officer vs. Owner

A business that operates as a corporation generally drafts bylaws – a document that governs all aspects of the company. Commonly, the bylaws will provide the limitations on the type of transactions the corporation can engage in, the rights of owners, the role of the board of directors and how the business will be managed by officers.

LLCs, Corporations, Patents, Attorney Help

Related articles

How to Remove a Shareholder From an S-corp

While an S corporation functions like a C corporation, it is taxed differently. Each shareholder pays taxes on his ...

Accounting for an S Corporation Shareholder Buyout

An S Corporation is a small business that generally protects its 100 or fewer shareholders from the business’s ...

How to Transfer Stock in My S Corporation

An S Corporation is a business that registers with the Internal Revenue Service to obtain special tax benefits. To hold ...

How to Write an S Corp Operating Agreement

An S corporation is a qualifying corporation that has elected to be taxed under Subchapter S of the Internal Revenue ...

Browse by category
Ready to Begin? GET STARTED