What is the Purpose of Company Bylaws in Phoenix?

What Are Company Bylaws?

Company bylaws are legally binding rules that dictate how the company operates internally. Essentially, they work as the company’s operating manual to govern the day-to-day operations and ensure that the company runs smoothly.

Every Phoenix company should have well-written bylaws in place, no matter the size. They should be one of the first created after you establish the company.  Although you are not required to file your bylaws with the state under Arizona law, every Phoenix corporation must have them in place.

Sure, it’s easy to start a business without an attorney. Put together a website, get some emails out there and start recruiting customers. But what if a business relationship goes sour? How do you handle hiring employees or contractors? How do you protect the assets in your business?

Any time you start a new venture, but especially when your business is growing, it’s important to have all the legal pieces in place. You need to know that you are protected and that contracts and agreements are in place—before something goes wrong.

In addition to establishing start-up, ground-zero business documents, I can ensure a joint venture or partnership gets started on the right foot by establishing partner agreements. If you’re starting a business with a friend or family member, things might look rosy today but the last thing you want is to strain your personal relationship because you didn’t communicate fully at the beginning of your business relationship.

Company bylaws are often very detailed documents. Under Arizona law, Bylaws can contain any provision that is not prohibited by law, and Phoenix companies are not required to include any specific information. Bylaws are unique to each organization, but below are the basic components that many companies include.

• Identifying information. In this section, you would include the corporation’s name and location, along with other identifying information.
• Statement of purpose. The statement of purpose is the reason why your company exists. It answers the questions of who your customers are and what you will be providing them. It helps to set the path of the company.
• This section can include information such as the different types of members (i.e., voting and non-voting), the membership selection process, and the procedure for disciplining and removing members.
• Board of Directors. The board of directors is the primary governing body of the organization. In your bylaws, you can address the number of directors, the length of terms, how vacancies are filled, the qualifications required of directors, and the duties and powers assigned to directors.
• The bylaws can also identify committees created by the board of directors. Committees are smaller groups of directors that perform specific tasks. Common committees include a membership committee, nominating committee, audit committee, and fundraising committee. The bylaws should outline the roles and responsibilities of each committee.
• The officers of a company typically include the president, vice president, secretary, and treasurer. The bylaws can include the duties and powers of these positions and how these officers are appointed and removed.
• This section on meetings can include notification requirements, timing, location, quorum requirements, and any protocols that directors or shareholders must follow.
• Conflict of Interest. Including a conflict of interest, provision can work to protect your company from IRS penalties. It should specify that board members will not vote on a matter that they have a direct financial interest in.
• Amending bylaws. As your business grows, the bylaws need to adapt to the changing conditions. Therefore, you should include a section outlining how and when the bylaws can be amended.

It is critical to work together with an experienced business planning attorney when making your bylaws. An attorney can ensure that the bylaws are well-drafted and comprehensive.

Why are Company Bylaws Important in Phoenix?

A well-drafted set of company bylaws are essential for several reasons. First, they will help your business run smoothly by resolving uncertainty and conflicts. Secondly, even though you do not have to file bylaws with the state, they may be required to open a bank account, get a business loan, or obtain government certification as a minority-owned business. Bylaws are also needed in case of an audit. Finally, bylaws work to maintain a clear line between personal and company business. If your business is ever sued, this separation can help guarantee that your personal property is protected.

What is the Difference Between Company Bylaws and Articles of Incorporation?

Bylaws and articles of incorporation are often confused and conflated. Phoenix businesses file articles of incorporation with the state of Arizona to establish its existence. It is typically a short document that does not go into detail about the company’s operation. Instead, it states general information such as the name of the person organizing the corporation, location of the corporation, and the number of shares authorized.

In comparison, bylaws are created by the board of directors after the company has been formed. They go into much more detail about the business’s operation, and you do not need to file bylaws with the state of Arizona. Both articles of incorporation and bylaws should be created when you start a business.

Your Phoenix Business Planning Attorney

If you have questions about company bylaws, you should contact a Phoenix business planning attorney. Nicole Pavlik is an experienced business planning attorney based in Phoenix, Arizona. Call Nicole Pavlik Law Firm today at 602-635-6176 to schedule a free consultation and discuss your business planning needs.