What are Corporation Bylaws?
If you are interested in forming a New Mexico corporation, one of your first required steps will be drafting your corporation's bylaws. Your bylaws will detail the purpose of the corporation, the owner responsibilities, and its organizational and operational structure. Bylaws are dictated by your corporation's board of directors and act as a legal document. This document also commonly outlines the ownership rights of shareholders, how officers and directors are elected and removed, and when annual meetings take place.
Benefits of Bylaws
Once your corporation has agreed upon and adopted a set of bylaws, that document becomes legally binding. Your bylaws will govern, guide, and protect your corporation's shareholders, members, and processes. Making sure there is adequate care and time invested in the drafting of your bylaws will save you from disagreements and legal disputes in the future. Additionally, here are a few other benefits that bylaws can offer your business:
- Define the rights and responsibilities of shareholders, directors, and members. This gives individuals a clear sense of their roles and will help boost organizational efficiency.
- Detail the proper process for handling disputes. This process should have clear steps, note the overseeing arbiter, and provide an adequate path to resolution.
- Outline your organization's daily operations and troubleshooting procedures. This will assist you in avoiding foreseeable issues and minimizing problems when they arise.
- Demonstrate legitimacy for dealings with partners, vendors, banks, creditors, and more. Bylaws are not required by the state but are often seen as a good sign of professionalism and good practice by an organization.
- List the terms and procedure in the event of a shareholder departure or buyout. Note any differences between a voluntary and involuntary departure. Understanding these terms ahead of time will provide stability for your organization.
Drafting Your Corporation's Bylaws
The drafting of your bylaws will fall to your corporation's board of directors. Once your board has been appointed, this is likely the first matter of business they conduct. It is an important step to complete as the bylaws will dictate many of the future processes, operations, and duties that your corporation will carry out in the days to come. In some cases, a corporation may not appoint a board of directors. If this is true of your corporation, the job of drafting the bylaws will fall to the incorporator. It is also helpful to note that your bylaws are not filed with the state, rather the document is for private use and written for your corporation's use and benefit.
What Information Should be Included in Your Bylaws?
What your bylaws end up covering will most likely differ with each company. While there may be certain similarities that can be drawn between businesses, perhaps an aspect like organizational structure, each company will have its own set of priorities, operations, and interests and your bylaws should address these specifics. However, there are also certain over-arching elements that are commonplace in most bylaws.
Bylaws should include your corporation's basic information. This would include the corporation's name, main office address, and basic terms and requirements related to stock ownership. Additionally, as mentioned above, bylaws include the purpose of your corporation, which would outline its basic reason for existence.
Board of Directors:
Your corporation will appoint a board of directors to act as its governing body. In drafting your bylaws, be sure to include your board's information, such as names, tenure length, number of directors, and the number required for a quorum. In addition, be sure to include the responsibilities of board members and a process for filling vacancies.
Officers & Members:
A corporation will often designate officer roles such as President, Treasurer, Secretary, and others. If your corporation has such roles, your bylaws should detail the responsibilities and performance expectations for each. Similar to board members, there should be a process for electing and replacing these roles. Additionally, your bylaws should include any pertinent information related to corporation membership. If there are tiers of membership that come with differences in voting rights, or if there is a process for selection and removal, this information should be included.
In some cases, a corporation may create a committee to address or govern certain areas. List any committee that your organization has and the role that committee performs. Some examples of common committee types include a committee for membership or investment.
Board Member Meetings:
List any information pertaining to routine board member meetings, such as meeting time, location, and attendance requirements. If there is a vote scheduled to occur at the meeting, be certain that there is a consensus on quorum requirements.
Conflicts of Interest:
It is not uncommon for conflicts of interest to exist within an organization. If any possible conflicts are present in your corporation, detail them in your bylaws. This precautionary measure will offer protection in the event of IRS penalties. An example of a conflict of interest would include a board member that has a financial interest in a matter being voted on. The correct course of action in this case would be for the board member to recuse himself from voting.
Need Assistance with Your Corporation's Bylaws?
While the topics discussed here cover many aspects of your corporation's bylaws, from both their purpose to what they should include, often times these documents end up being very complex. It is smart practice for any corporation to enlist the assistance of an experienced attorney to help with the language and drafting of the document, as it may cover a wide-range of legal implications. Additionally, an attorney can ensure that the matters covered in your bylaws are clear, thorough, and in compliance with New Mexico state law.