Investors who look for businesses to support usually choose those companies that practice good corporate governance. And to find out which ones do, investors look into company policies and practices, which they can find in documents such as bylaws.
But what are bylaws, and how are they different from other business governance documents like Articles of Incorporation?
Bylaws versus Articles of Incorporation
Articles of Incorporation are necessary to establish a corporation. Business owners must file the document with their state to legalize the formation of the business. The document includes basic information about the company, such as its name, purpose, address and company shares.
On the other hand, states do not generally require bylaws to form a corporation. While it also includes the company’s general details, bylaws hold more information than Articles of Incorporation.
The purpose and inclusions of bylaws
Companies must have good corporate governance to establish their business’s integrity and to regulate the powers of the board of directors. This is one of the purposes of bylaws. Bylaws are one of the founding documents of a corporation. It includes the following information:
- The company’s basic details, such as name, address and business type
- The company’s management structure
- The company’s purpose
- The list of directors with their respective titles and responsibilities
- The procedure for shareholder, board and other meetings
While Pennsylvania does not require the creation of the document, it acknowledges the importance of the same and recommends it to business owners. It is beneficial to have bylaws, especially since entities like investors and banks must see the same before investing or approving loans.
Bylaws cover important rules and processes to keep the company’s direction and governance steady. Though they are not required when establishing a corporation, business owners should consider them to ensure they have the essential documents necessary to manage a corporation.