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Bylaws

What are Bylaws? Bylaws outline the organizational structure of the corporation. B. They tell shareholders, directors, and officers the how, the what, the who, and the when in terms of how a corporation functions. Directors, officers, and shareholders should look to the bylaws for guidance on their roles and on how the corporation functions as a legal entity. When forming a North Carolina corporation, the first step is to draft and file articles of incorporation with the NC Secretary of State. “Corporate existence begins when the articles of incorporation become effective.” N.C.G.S. § 55-2- 03(a).

Bylaws, though, are not typically filed with the Secretary of State. This can lead some incorporators to assume that bylaws are not necessary to conduct business as a corporation. Indeed, there is North Carolina case law suggesting that the absence of bylaws will not necessarily invalidate the corporation. Conversely, the North Carolina Business Corporation Act (the “Act”) provides that “the incorporators or board of directors of a corporation shall adopt initial bylaws for the corporation.” N.C.G.S. § 55-2- 06(a). The Act further provides that, after incorporation, either the initial directors or the incorporator shall hold an organizational meeting to, among other things, adopt the bylaws. N.C.G.S. § 55-2- 05. It is therefore highly advisable for a corporation to adopt bylaws.

Should We Adopt Bylaws

North Carolina corporations should adopt bylaws not only because of the aforementioned provisions of the Act, but also because of the organizational clarity and procedural predictability that comes with having a clear and comprehensive set of bylaws. All bylaws should set forth the roles, authority, and duties of the officers, the number and manner of electing directors, and the time and date of the annual shareholders’ meeting. In addition, bylaws may contain “any provision for managing the business and regulating the affairs of the corporation that is not inconsistent with law or the articles of incorporation.” N.C.G.S. § 55-2- 06(b). These additional provisions may include, but need not be limited to, the quorum required for meetings of the shareholders or directors, the time and place of the annual shareholders’ and directors’ meetings, the vote and notice required to call meetings, the requirements for use of proxies in meetings, and the procedure for taking action without a meeting.

Amendments to Bylaws

To amend the bylaws, the first question to ask is whether the provision to be amended was adopted by the shareholders or the directors. If adopted by the shareholders, the shareholders must approve the amendment unless the bylaws or articles of incorporation specifically state that the directors may amend that particular provision. N.C.G.S § 55-10- 22(a). If the provision to be amended was initially adopted by the directors, then in most cases either the shareholders or the directors may amend that provision.

Contact your corporation’s attorney to discuss preparing, adopting, or amending your corporation’s bylaws.

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