Articles of incorporation and bylaws are two key documents that establish the legal and governance structure for a business. While they serve complementary purposes, there are important distinctions between the two. This article will define and compare articles of incorporation and bylaws, outline the required components and creation processes for each, summarize key differences, and provide best practices around establishing and maintaining these founding business documents.
Properly defining structure through articles of incorporation and bylaws provides legitimacy for a business, putting in place procedures and protocols to facilitate decision-making. For entrepreneurs starting a new venture, understanding these documents is essential.
Articles of incorporation are formal legal documents filed with a state to voluntarily form a corporation. They establish a corporation as a legal entity separate from its owners.
Key details included are the corporation's name, objectives, stock details, registered address and agent, and incorporator details. Filing these articles with the Secretary of State or other governing body legally creates the corporation.
While specific requirements vary across states, articles generally must include:
The articles of incorporation must be filed with the appropriate state agency, usually the Secretary of State's office. There are filing fees involved which range from $100-800, depending on the state.
Approval is provided by the state as long as legal requirements are met in the filing documents. These then become public record.
Corporate bylaws establish key governance rules and procedures regarding company management. They outline internal structure, policies, and protocols beyond what state law covers.
Bylaws act as an operating manual dictating board composition and responsibilities, outlining shareholder rights, and procedural requirements for meetings, votes, amendments etc. They provide standardized guidance for essential business activities.
Usually bylaws are drafted alongside incorporation, or soon after. The incorporators or board typically develop them for review and adoption by directors/shareholders. Updates require shareholder/board approval based on amendment procedures outlined in the bylaws themselves.
The articles form the legal basis for the corporation's existence, while bylaws provide operational rules and procedures reflecting key decisions already outlined in articles (around stock types/purposes for instance). Bylaws must align with state law and provisions set forth in articles.
There are several key differences between these two foundational documents:
Articles of incorporation become part of the public record whereas bylaws remain private internal documents.
Articles establish the basic legal structure and grant the authority to operate and conduct business. Bylaws provide specific rules around exercising governance.
Articles of incorporation must be filed with the state to form the business, requiring standard fees. Bylaws remain with company records and have no state filing requirements.
The amendment process itself is outlined in the bylaws. But given their legal weight, articles of incorporation usually have stricter amendment requirements than bylaws. Changes often necessitate shareholder votes.
To leverage articles of incorporation and bylaws most effectively, businesses should:
Repeating provisions between the documents requires amending both when changes are made. Clearly delineate which document regulates which realm.
Ensure accessible, current versions are always available for reference at the principal business address.
Mandate that incoming board members read both documents to understand legal origins and governance procedures.
Articles of incorporation legally establish the business as a distinct corporate entity under state laws. Bylaws act as a governance playbook dictating internal policies around finances, meetings, shareholders and board matters beyond this legal structure. Corporations require both documents to function optimally, understanding they serve complementary rather than redundant purposes.
Properly composed articles of incorporation and bylaws foster legitimacy and effective governance from a company’s origins by granting state approval, outlining authority, codifying procedural rules, clarifying roles for shareholders/directors and stipulating amendment processes. These measures facilitate equity, access and accountability from the start.
Together, articles of incorporation and bylaws provide an essential legal and managerial scaffolding permitting controlled company growth under agreed upon terms. Entrepreneurs should carefully compose these components cooperatively with transparency and the protection of all parties in mind. The documents can prevent governance breakdowns compromising productivity or progress as the companies scale.