What is bylaws definition?
How do you legally define bylaw?
What are the important elements that you must know!
In this article, we will break down the “bylaws definition” from a legal perspective, so you know all there is to know about it!
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What are bylaws
Bylaws can have two meanings:
- Corporate bylaws
- Regulations adopted by a non-sovereign body
Let’s look at corporate bylaws first.
Corporate bylaws are rules established by legal entities, organizations, partnerships or business entities to manage their internal affairs.
In other words, organizations adopt rules to manage their internal affairs efficiently and effectively.
In many cases, companies adopt standard or boilerplate bylaws.
However, larger organizations may have corporate lawyers and attorneys draft specific rules and regulations companies wish to adopt internally.
In essence, the company bylaws are intended to:
- Regulate its members
- Outline guiding principles for its operations
- Allows the board of directors to oversee the company’s operations
Now let’s look at the bylaw meaning from the perspective of government bodies or agencies’ regulations.
Bylaws can also refer to legal ordinances or regulations adopted by the legislature.
Typically, the law provides the legal authority to a government body, agency or entity to establish rules and ordinances with respect to its functioning within the jurisdiction given by law.
Municipal by-laws are public laws governing the operations of a municipality.
In essence, the bylaws (having the same authority as law) are adopted by non-sovereign bodies who derive their authority to adopt such rules, regulations, or codes according to the statutory or legal authority given by law.
We consider that to be delegated legislation.
How do you define bylaws?
According to The Law Dictionary, bylaw is defined as:
Can refer to a law of local or limited application, passed under the authority of a higher law specifying what things may be regulated by the bylaw, or it can refer to the internal rules of a company or organization
In essence, it can either refer to a set of rules or regulations or refer to a legal entity’s internal rules.
In addition to referring to a company’s internal corporate record, the term bylaw can have a second definition.
According to the Merriam-Webster Dictionary, the term bylaw is also defined as:
A law or regulation that is made by a local government and that applies only to the local area
Based on this by-law definition, the term by law refers to:
- A code
Bodies, agencies or entities issue such regulations in accordance with powers delegated by law.
Adoption of bylaws
Once a legal entity is formed, such as a corporation, one of the board of directors’ first task is to adopt its bylaws.
Generally, an initial draft of the bylaws is presented to the company’s board of directors who will review and approve them.
The board of directors gives the approval by signing a resolution approving the draft bylaws and by signing the actual draft bylaw document.
Once the corporate by law is adopted, the company’s internal stakeholders must act according to the adopted rules.
Organizations maintain the official copy of their bylaws along with all other corporate records in their minute book.
It’s important to keep the formal company by law document at the company’s head office in case there is a corporate audit by the government or tax authorities.
Components of bylaws
Bylaws cover many aspects of the internal affairs, functioning and operation of the company, such as:
- Company identification
- Board of director management
- Election or removal of board officers
- Board of directors meeting
- Rights and obligations of corporate officers
- Directors and officers terms of office
- Shareholder meeting logistics
- Board functioning
- Annual meetings
- Voting by proxy
- Meeting notification
- Amendment procedures
Let’s look at some of the most important elements of a corporate bylaw so you can have a better understanding of what information should be put in them.
Basic information about the company is found in the bylaws, such as:
- Company name
- Company purpose
- Company location
- head office address
- Private or public status
Board of directors
One of the most important sections of an organization’s bylaws is with respect to the board of directors.
The board of directors represents the company, they make important company decisions and have significant powers within an organization.
As such, the company bylaws will govern aspects such as:
- Board rights
- Board duties
- Board composition (maximum and minimum amount of directors)
- How the board exercises its powers
- How board members are elected
- The term of their office
- How board members are removed
- Board member meetings
- Board meeting quorum
- How to fill board vacancies
If the organization allows for members to join or needs to manage membership, the “members” section is where the specifics will be outlined.
This section will deal with:
- Member qualification
- Member election
- Member voting rights
- Disciplinary procedures
- Member removal
Officers are individual members of the board of directors.
A company officer may be a member of the board and part of the company’s day-to-day operations such as a company CEO, Secretary, Treasurer or President.
The management structure of a company is generally outlined in its bylaws.
Any changes in the company’s leadership must observe the management structure outlined in the bylaws (unless the board formally amends the structure).
Committees are individuals appointed by the board of directors for a specific purpose.
The bylaws will outline the committee’s role, duties, obligations and governing rules.
In larger organizations, you can have an executive committee in charge of making recommendations to the board and informing the board of various important business aspects.
You can also have specific committees such as audit, membership, board nomination, compliance or other committees as required by the business who will have a specific objective and will report back to the board on its objectives.
Bylaws must indicate how shareholder meetings are managed, when they should occur, and the applicable procedures.
In case the company needs to call a meeting outside of a standard board of directors meeting or shareholder meeting, the bylaws will generally define the process to call other meetings.
The procedure of calling the meeting, the notification to the relevant parties and any other aspects governing the meeting will be outlined in this section.
Conflict of interest
Organizational bylaws should also have a conflict of interest section dealing with how the company addresses the conflict of interest issues.
A company director or officer must not act to put their personal interest before that of the company.
We refer to this duty as the fiduciary duty.
The bylaws should provide for the proper procedures and logistics in having the directors and officers disclose any possible conflict of interest along with the process of dealing with such a scenario if it were to occur.
The company bylaws will have a process to manage when, if and how the board of directors can amend or make changes to the bylaws itself.
Usually, when a change is proposed to the company bylaws, a board of directors makes a proposal, a vote is held, and the change will be formally made in the company records if approved.
Bylaws vs articles of incorporation
What’s the difference between bylaws and articles of incorporation?
Articles of incorporation represent legal documents required to form a legal entity.
The articles of incorporation must respect the state rules for the formation and establishment of a new company and contain information like the company name, address, basic information about the business, registered agent designation and more.
Once the articles of incorporation are received and approved by the state, the company can then be officially and formally constituted.
The bylaws, on the other hand, is not a document that is filed with the state.
It’s an internal document to a company allowing the company to function during its life.
Generally, once the company is formed and the state confirms the establishment of the company, one of the first internal documents that must be adopted and approved by the company’s board will be the bylaws.
So what is the by-laws definition?
What is a bylaw?
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