A corporate bylaw is basically a rule that helps to govern a corporation. Just like municipal bylaws that help govern a city, a corporate bylaw can not contradict local, state or federal laws in any way or they are invalid. Every corporation has their own set of bylaws in which to operate by.
In most cases, a corporations’ original set of bylaws are spelled out in the Articles of Incorporation, a document filed with the state or local corporate regulatory agency that announces a company is becoming a corporation and why. This is much like a first draft of an ever changing essay, as the corporate bylaws can be updated on a regular basis.
Depending on the jurisdiction, the corporate bylaws can be changed during any meeting of the board of directors, or they sometimes require a vote by the shareholders. This is often done at shareholders meetings and recorded in the official minutes for that meeting. Depending on the rules under which the corporation has been founded, you may need a certain percentage of shareholder votes plus a percentage of the board of directors to change a corporate bylaw. These rules are usually set forth when the company issues its articles of incorporation.
It wasn’t that long ago that most corporations issued a constitution and a list of corporate bylaws, but that is considered a somewhat antiquated way of doing things now and most corporations simply stick to a list of bylaws to reduce confusion. The list of bylaws essentially outlines the basic tenants and beliefs that the corporation will be run under. It can be a combination of business rules and ethics, as well as a general list of proper ways to deal with fellow employees and a pledge to honesty and integrity at all times. A violation of bylaws is often sighted as reason for termination of select employees from mail room clerks to presidents and CEOs. Bylaws are also often sighted if a company is accused of any kind of impropriety or if they should happen to declare bankruptcy and a regulatory agency can point to incidents where members of the board of directors knowingly and willfully violated their own corporate bylaws for personal gain.
When two companies merge, one important task that the two companies must engage in is to either combine the two sets of bylaws that the companies function under or choose one set of bylaws over the other. It would be next to impossible for two companies to compete under the same corporate umbrella with two different sets of bylaws that could theoretically compete with each other.
Whenever there is a change made to a corporate bylaw, an official record must be kept and most jurisdictions require that change to be filed with either the state or the regulatory agency that watches corporations in that area. Employees at every level will be notified and in some cases, they might even get a vote. Corporate bylaws are a very important part of today’s rapidly changing business culture.