When forming a company or any other legal entity, it’s important to get it right from the get-go. You must start by assembling all the necessary documents to ensure your business is protected and compliant with the laws in your jurisdiction.
Documents to create when forming a business include articles of incorporation and bylaws. While both are crucial, they serve different purposes. One establishes the organization as a legal business entity, while the other acts as a guiding document for the board of directors and leadership team.
Read on to learn more about articles of incorporation vs. bylaws.
What are Articles of Incorporation?
What are articles of incorporation? Articles of incorporation are a set of formal
documents filed with the secretary of state. These documents typically include the firm’s name, the purpose of the corporation, and the process by which a board of directors is elected.
When articles of incorporation are filed, an organization becomes legally recognized as a corporation. In short, these documents set forth the basic details of who is involved in your company and what they will do, including naming a registered agent. Companies expose themselves to fines and penalties if they fail to draft these documents.
Additional reasons a limited liability company (LLC) needs articles of incorporation include:
- To open a business bank account
- To obtain a business loan from a bank or other financial institution
- To receive tax treatment as an LLC or S corporation, thus paying taxes as sole proprietorships and partnerships
- To transfer ownership in the company and have that transfer be recognized by the state
What are Bylaws?
What are bylaws? Bylaws are the guiding documents used to define the rules and
regulations that corporate or nonprofit boards of directors follow. Additionally, bylaws
establish quorum requirements, board member terms, and more.
Like an operating agreement, bylaws rarely get altered after being drafted and accepted. That’s because the bylaws dictate how a company operates and can only be amended or revised with the approval of a majority of the board members.
Unlike articles of incorporation, failure to draft bylaws imposes no legal penalties. However, it can still have far-reaching implications for corporations operating without them. That said, here’s a quick outline of the critical benefits of drafting bylaws:
- Establishes board guidelines and procedures
- Defines the roles and responsibilities of board members
- Outlines legal liabilities associated with running the business
- Sets rules for when and how board meetings are held
- Clarifies who can vote on behalf of the corporation
By failing to draft bylaws, companies may miss out on crucial corporate structure opportunities, such as developing committees and assigning specific duties to board members. Additionally, companies could be exposed to potential disputes if the directors cannot agree on decisions or issues due to a lack of guidance from the bylaws.
Getting Started With OnBoard
Articles of Incorporation and bylaws are separate documents used to establish and govern/regulate a business entity. A platform like OnBoard, purpose-built for boards, provides a secure system of record for these documents and more.
Additional OnBoard features and capabilities include:
- Frictionless collaboration: OnBoard includes several collaboration capabilities, such as Zoom integration and a secure messenger.
- Skills tracking: OnBoard makes it easy to track all board members’ skills and expertise, ensuring you have the right people on your team.
- Customized dashboard: You don’t need to waste time hunting down essential documents or reports. A customized homepage allows directors to quickly examine upcoming meetings, with instant one-touch access to supplementary materials and announcements.
- Robust security and compliance: Unparalleled security and data protection features like permission management and compliance flexibility give you confidence and control over your organization’s most sensitive data.
For an excellent starting point, download our free board meeting agenda template to see what OnBoard can do for your organization.
About The Author
- Adam Wire is a Content Marketing Manager at OnBoard who joined the company in 2021. A Ball State University graduate, Adam worked in various content marketing roles at Angi, USA Football, and Adult & Child Health following a 12-year career in newspapers. His favorite part of the job is problem-solving and helping teammates achieve their goals. He lives in Indianapolis with his wife and two dogs. He’s an avid sports fan and foodie who also enjoys lawn and yard work and running.
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