What are Corporate Bylaws?
Corporate Bylaws are rules a corporation uses to organize its internal management. They outline meeting rules, voting rights, and the policies and responsibilities of the corporation’s directors, officers, and shareholders.
Corporate Bylaws are also known as:
- Company bylaws
- Business bylaws
- Company constitution
What are some terms in Corporate Bylaws?
You may need to know the following terms when you fill out your Corporate Bylaws:
- Special Meeting: an interim meeting set up by shareholders or directors to make decisions that can’t wait until the next scheduled annual meeting.
- Quorum: the minimum voting strength, based on the number of voting shares owned by the shareholders who are in attendance (or their proxies), that must be present at a meeting to make decisions and transact business.
- Remote Communication: meetings held by phone or video conferencing (or when one or more members attend a meeting by phone or video conferencing).
- Voting Trusts: when a shareholder appoints a trustee to hold their shares and vote according to a voting trust agreement.
- Cumulative Voting: a system of voting where each shareholder gets to vote based on the number of voting shares they own multiplied by the number of directors running for election. This voting method allows a minority shareholder to take all the votes they'd typically use in multiple directors' elections and apply them all to a single director's election. That way, a minority shareholder has a better chance of influencing the outcome of the election.
Which decisions should be considered in Corporate Bylaws?
There are several decisions that a company's Corporate Bylaws should include, such as:
- Company management structure: if the company will have a simple structure (consisting of a president, treasurer, and secretary) or a complex management structure (containing a CEO, CFO, COO, presidents, and vice-presidents)
- Notice for directors’ meetings: the amount of notice needed to call a meeting of the directors
- Remote meetings: whether directors and shareholders meetings permit remote communication
- Voting: what percentage of votes forms a quorum, if shareholders can form voting trusts, and if cumulative voting is allowed
Does a corporation need Corporate Bylaws?
There isn’t a legal requirement for your corporation to have its own set of bylaws, but it’s a good idea to have them.
Without your own Corporate Bylaws, your company will be governed by either:
Having these acts govern your corporation may result in undesirable outcomes. The applicable legislation will only provide a general guide for a wide range of corporations and isn’t customized to meet your shareholders’ needs.
When do Corporate Bylaws come into effect?
Usually, a corporation’s directors formally create Corporate Bylaws at the first Directors' Organizational Meeting.
After creating the bylaws at the first meeting, the rules and procedures in the Corporate Bylaws will come into effect and guide the company's internal management.
Are Corporate Bylaws public record?
No. Your Corporate Bylaws are an internal document that you don't need to share with the public. You also don't need to file them with any government entity.
How do I create Corporate Bylaws in Canada?
You can create your Corporate Bylaws by completing LawDepot’s questionnaire. Using our template ensures you complete the following necessary steps.
1. State your location
Select the province or territory where the company is (or will be) incorporated, and we'll tailor your Corporate Bylaws to meet the applicable laws and regulations of your location.
It's also possible to choose federal incorporation, which allows your corporation to trade across Canada using the same corporation name. Choosing the Canada (Federal) option customizes your bylaws per the Canada Business Corporations Act and regulation.
LawDepot has Corporate Bylaw templates for:
- Alberta
- Manitoba
- New Brunswick
- Newfoundland and Labrador
- Northwest Territories
- Nova Scotia
- Nunavut
- Ontario
- Prince Edward Island
- Quebec
- Saskatchewan
- Yukon Territory
- Canada (Federal)
If your corporation is in British Columbia, use LawDepot’s British Columbia Incorporation Package (CBCA). You’ll receive Company Articles customized according to your choices.
2. Provide your corporation’s registered name
Every corporation needs a unique name. Reserve a name by registering it with the appropriate government agency. If your company is incorporated federally, register the name with the Canadian federal government. Otherwise, register the name with your provincial government.
If you haven’t registered the name you desire yet, you can check its availability using a Corporate Name Search.
3. Outline the rules for shareholder meetings
Create rules that will govern shareholders in making important decisions at meetings.
What per cent of voting shares constitutes a quorum?
A quorum is the number of shareholders representing a minimum number of voting members that must be in attendance at all times for a meeting to proceed. Attendance can be in person or by proxy.
If your bylaws don't address what forms a quorum, then a majority of the shareholders present at the meeting (in person or by proxy) is a quorum.
Depending on the shareholdings in your corporation, it may be better to set a specific percentage to ensure the quorum represents the desired cross-section of the shareholders. For example, if one shareholder owns 66 per cent of the corporation, then setting the quorum percentage below 66 ensures that one shareholding is a quorum. Alternatively, setting it at 67 per cent or more ensures another shareholder needs to be present.
Is remote communication permitted as a form of attendance?
There may be instances where it’s more practical for shareholders to attend a meeting through remote communication. A shareholder can attend a meeting through phone or video conference if your Corporate Bylaws allows remote communication.
Can shareholders form voting trusts?
A voting trust is a legal trust that combines shareholders' voting power by temporarily transferring their shares to a third party (the trustee). The trustee is usually obligated to vote in accord with the desires of the participating shareholders.
Voting trusts are useful when a company has minority shareholders who have limited interest or voting strength in the business. They can also help resolve conflicts of interest, retain majority control, and prevent hostile takeovers.
Is cumulative voting allowed when electing directors?
Cumulative voting allows a minority shareholder to take all the votes they'd typically use in multiple directors' elections and apply them all to a single director's election.
For example, suppose a corporation holds five elections for five potential directors, and a minority shareholder has two votes in each election (ten total votes). In that case, cumulative voting allows the shareholder to apply their combined ten votes to a single director's election.
Cumulative voting can prevent a majority shareholder from choosing all the directors of a company.
4. Create rules for director meetings
Corporate Bylaws should establish how much notice is necessary to call a directors’ meeting. LawDepot’s Corporate Bylaws template allows you to choose:
- Reasonable notice
- A number of hours
- A number of days
What qualifies as reasonable notice is up for interpretation and depends on the established business practices within the company. Select a different option if you prefer a more definitive notice for directors’ meetings.
Your company may find it appropriate to stop a director from voting on issues where there is a potential conflict of interest. A conflict of interest occurs when a director’s personal interests clash with the interests of the company. This is a problem because a director has a responsibility to act in the best interests of the company.
Additional factors to consider include:
- How many directors will your company have?
- Can the company lend money to officers, directors, or employees?
- What per cent of directors need to be present for a meeting to proceed?
- Will remote communication be permitted?
5. Choose an officer structure
State in your Corporate Bylaws whether directors, incorporators, or shareholders will appoint officers.
There are two types of officer structures your company can choose from:
- Simple officer structure: consisting of a president, a treasurer, and a secretary.
- Complex officer structure: possibly consisting of a CEO, COO, CFO, president, and a number of vice presidents.
How do I amend Corporate Bylaws?
You may need to update your Corporate Bylaws as corporate laws and regulations change. This is typically done by the directors and/or shareholders voting on bylaw amendments.
Once the amendment vote has passed, the changes are put in writing using a Directors' Resolution or Shareholders' Resolution and integrated into the Corporate Bylaws.
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