Corporate Bylaws: What They Are & Why They're Important

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Many aspiring new business owners know that incorporating their new venture is a great first step to protecting yourself, but the corporation alone isn't usually enough. To fully protect your personal assets and interests and those of your business partners, you’ll need to create corporate bylaws that outline how your new business will be run. If that sounds complicated, you don't need to worry because our legal subscription plans for small businesses allow you to consult experienced, dedicated small business attorneys who are well versed in creating corporate bylaws to help you customize the kind of bylaws your new small business will need. In the meantime, here is a brief overview of what corporate bylaws are and how they work:

What Are Corporate Bylaws?

The direction of a corporation is done by a board who makes important decisions for how the business is run. That same board of directors will develop a set of rules and regulations that dictate the corporate or organizational structure of the business and how business will be conducted and decisions made on a day-to-day basis. Most states require that corporations have these rules - known as bylaws - but they aren't generally required to be filed with your state. That doesn't mean that corporate bylaws aren't important, as they map out visions, expectations, and rules that ease the decision-making process, and reduce conflicts over time.

What Is Included In Corporate Bylaws?

Each businesses' corporate bylaws will be different and based upon the needs of the corporation, shareholders, industry, conventions, and other members, but the best corporate bylaws usually contain rules and regulations that cover the following areas:

Statement of Purpose

This part of corporate bylaws lets the board of directors establish overall goals, aspirations, and vision for the business. It often details the type and kind of clientele or market the business will target, the reasons that the business exists (what kind of market need it fills), how the business differs from competitors, and how those goals will be reached. The Statement of Purpose is particularly important for those organizations seeking to qualify for status as a 501(c)(3) non-profit, so those kinds of entities should pay special attention to this section of the document.

Membership

The members of a corporation differ from those in an LLC in that, in a corporate structure, they are shareholders, directors, officers, and employees. The corporate bylaws should address the type of members your company has or can have, the responsibilities of each member type, the rights of each member type, the voting rights of members, and the process by which members can be removed or added. Members aren't always just individual people: other corporations, partnerships, or other entities can also be considered members under corporate bylaws.

Board Of Directors

Corporate bylaws should set forth a structure for the Board of Directors, including:

• The minimum and maximum number of board members

• The qualifications needed to serve on the board

• Board member term length

• Rules for board elections

• How meetings are called and conducted.

Corporate bylaws should also detail what is considered a quorum for meetings of the board of directors.

Officers

Officers are designated by the board of directors to deal with the day-to-day workings of the business, and corporate bylaws should define those roles, their titles, the responsibilities, and how these officers can be elected, appointed, or removed from those positions.

Stock

Issuing stock to shareholders is one of the first things a corporation does, and your bylaws should detail the type and amount of stock as well as who receives stocks, how much they get, and how that transfer takes place. Your bylaws is also where you note the differences between non-voting and voting stock for shareholder meetings.

Shareholder Meetings

Shareholder meetings are annual meetings that corporations have, and your bylaws should contain the details of those meetings: when, where, and an agenda of what is to be covered at the meetings. It should also state the number of shareholders needed to have a quorum and begin proceedings. Shareholders can also hold special meetings, and your bylaws can dictate under what circumstances these special meetings can be called.

Committees

Committees are created by boards of directors to handle special tasks or issues, and your bylaws should state the types and kinds of committees your board can create, the authority of each, and how they do the work.

Conflicts of Interest

Some board members may be involved in a number of business ventures, and your bylaws should have a section addressing potential conflicts of interest. Adding a requirement that board members must disclose such conflicts and recuse themselves from making decisions or participating in discussions over matters involving these conflicts. Not doing so risks ethical problems, and having these rules in place protects your business' reputation.

Amending Bylaws

Situations change, and including a process for your bylaws to be added to, deleted from, or otherwise changed is important. Your bylaws should detail a process by which the bylaws can be amended. This should include who must approve of the changes, what vote margins need to be met, or other benchmarks that need to be met in order to adopt the amendment.

Let Us Help With Your Bylaws

There's a lot to do when starting a new business, and crafting solid bylaws is an important first step. Getting these rules right the first time will save you time, effort, money, and stress in the long run. Our network of small business attorneys can help you draft all the documents you need to start your small business at a fraction of what you might spend on an attorney on your own. Our Small Business Legal Protection Plans start at just $49 per month, and pay for themselves the first time you use them. Learn more about our Small Business Legal Plans or sign up now!

When Should I Get Legal Help Starting My Small Business?

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It's pretty common for small businesses to try to go it alone and not seek out help, even when help is needed. While many small businesses try to handle matters on their own, many times, it is the fear of the costs involved with bringing in professionals that prevents small business owners from seeking the help they need, particularly when it comes to legal issues. But when it comes to professional help for starting your small business, you can’t not afford to not seek out legal advice when it comes to critical issues with starting a small business, and it's a lesson that often comes too late for many small business owners. Read on for a list of crucial issues that your Small Business Legal Protection Plan attorney will be able to make easier while starting your small business, even on a shoestring budget.

Registering A Business Name

Formalizing your legal business name is the first step to starting a small business, and process is more involved than just making a logo and registering a domain name. Legal recognition of your small business means going through a process to officially register your business name with various levels of government entities. In some states, when you create articles of incorporation or organization for your business entity, you may be automatically registering your business name with your state, for example. If you intend to do business under a name that is different from your business name, you will need to register a DBA (Doing Business As) with your state. Doing business in multiple states means that you may want to protect your business name at the federal level, which means registering your business name with the U.S. Patent and Trademark Office.

All of these options mean that you have to research whether your business name is available in all of these databases, and an experienced small business attorney can help you with the process of research and registering your business name with all the relevant agencies required for your business and business structure.

Creating a Business Entity

Creating a business entity protects your personal financial assets from potential corporate debts and obligations, and while many people attempt to form and register their business entities themselves, the process may be complex and a lawyer well versed in the creation of business entities can make this process quicker and easier than doing it on your own.

Creating a business entity means choosing the right option for your business and industry. There are several options: LLCs, partnerships, LLPs, or forming a C-Corp or S-Corp. Each of these types of entities differ in both large and small ways, and which ones will be a good match for your business and business style and industry can be a complex question to answer. Without experience or knowledge in creating business entities, you run the risk of making the wrong choice for your business.

Once you choose and entity type, there is paperwork to be filled out and submitted to various government bodies, and mistakes can cost time and money, both in the long and short term. And if this seems complicated, we haven't even touched on articles of incorporation or organization and will need to be created.

Getting these early choices right is important and working with an experienced small business consultant or attorney from the beginning will save you time and money. Learn more about our New Small Business Filing Package!

Contracts

As a small business owner of any type, you will work with contracts for both internal and external reasons. Many small business owners aren't prepared with basic internal contracts and documents to start or grow their small business.

Contracts protect you and your interests, so it is important to have the right documents in place to cover all aspects and details of your business and day-to-day work. From partnership agreements to contractor agreements; from employment contracts to vendor and sales documents, it is important to have legally binding contracts written and on hand from the first day you start your business. You can't rely on templates from sites on the Internet to keep you and your assets fully covered as these types of generalized documents almost never cover state-specific needs, industry specific needs, or the specialized content you may need from your contracts based on your type and style of business.

Companies that your business will work with - rental agreements for office space, suppliers, equipment sales and repair, contracted workers - will all have contracts for you to sign, as well, and it is important that you understand what responsibilities you're agreeing to for you and your business with each one. Your network attorney under our Small Business Legal Protection Plans can look over contracts for your business and contracts given to you by businesses you work with and help you understand the terms before you sign.

Intellectual Property

Your business is built on your ideas or intellectual property, so it is important to protect that value. Your ideas and creations as well as the process and knowledge to create your work, your customer lists, skills, and branding are all intellectual property that should be protected the same way you'd protect physical property. Your intellectual property - depending on what it is - could be protected by trademarks, copyrights, or patents, and knowing which you need and the process for acquiring each can be complicated. You will want to make sure that you are getting the appropriate protection for each, and an experienced small business attorney, like those who are part of our network of legal firms, can help you navigate the process particular to your business and industry, getting you the protection you need. Registering your patents, trademarks, and copyrights means that you can take legal action should someone violate your intellectual property.

Getting Legal Help For Your Small Business Doesn't Have to Be Difficult or Expensive

Though it is tempting to try to save money by doing all of these things yourself, the truth is, you'll actually save yourself money in the long run by having a professional tackle the legal aspects of your small business. You can avoid mistakes by hiring an attorney, and our network of lawyers available to our Small Business Legal Protection Plan members offers this kind of protection at a fraction of the cost you'd pay by hiring an attorney on your own. Our Small Business Legal Subscription Plans offer you advice, document review, contract review, consultations, and more with law firms in your state. In most cases, you can talk with an experienced, dedicated attorney within one business day. Learn more about all the benefits of a Small Business Legal Protection Plan membership, or sign up your small business today!

Avoiding 4 Common Small Business Startup Mistakes

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A small business owner will have legal questions or concerns at some point. From deciding on the type of business entity to form, to contract reviews and negotiations, to worker classifications and employment regulations, there are dozens of times that small business owners need the assistance of a qualified small business attorney. Here are four of the most common mistakes small business owners make:

1) Selecting the wrong type of business entity.

There are a number of options to choose from when forming your new small business, from sole proprietorships to LLCs to corporations, and the type of entity you select will have far-reaching ramifications. Tax treatments, sale of interest in the business, and personal liability are among the most common impacts based on your business type. Sole proprietorships can leave your personal assets - your home, cars, savings, and more - at risk if your business is sued or cannot repay a debt. Partnerships can leave you responsible for liability from the actions of a partner. LLCs and corporations protect your personal assets and limit your liability, but there are tax considerations to consider, as well. For these reasons, it's important to seek the advice of a qualified professional business consultant or small business attorney before making these decisions.

2) Incorrectly classifying workers

It is a business owner's responsibility to correctly classify workers with the IRS, and to know how the IRS's definition of what makes one worker an independent contractor and another an employee... and what that means for your responsibilities for each worker. The primary reason for worker classifications is for the determination of taxes and record-keeping. In general, if you control when, where, and how work is done, your worker is an employee and not an independent contractor. Failure to report an employee - or incorrectly report an employee as an independent contractor - can have serious fines and penalties, so if you have questions about whether a worker is an employee, it's best to ask an attorney with experience in employment law.

3) Discovering a problem with a contract you already signed

This is a challenging situation for anyone to find themselves in, and can lead to major problems for a small business, including potential income loss or a business relationship souring. Contracts should accurately describe duration, cost, responsibilities, and other details in a way that each item is clearly defined. Having a contract attorney look over contracts before you sign them is the easiest way to minimize risk.

4) Failing to protect intellectual property

If a competitor started using your business name or selling products identical to those you've developed, what options would you have? Artists are protected by copyright laws, and, in much the same way, your business can be protected by registering trademarks and patents. These laws were put in place to protect inventors, innovators, and businesses from copycats and those who seek to profit off your hard work. A trademark and patent attorney can help small businesses protect their inventions and products by assembling patent and trademark applications and making sure all the legal boxes are checked.

Many of these legal challenges can be avoided by consulting with small business specialists and attorneys, but many times, it just isn't in the budget to pay hourly fees for these services, especially if you're a startup. But what if there was a low-cost solution so your small business can have access to qualified attorneys? As a member of our legal subscription services, you have access to experienced, dedicated, professional law firms with expertise in small business legal matters to answer your questions and give advice throughout your small business journey. You can get contracts reviewed, ask legal questions, and even have attorneys send out debt collection letters or make phone calls on your behalf.

Read more about our small business legal subscription plans, where you can get access to experienced, dedicated, small business attorneys starting at just $49 per month!

Starting A Small Business - Are You Ready?

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You have a great idea for a small business. You have a solid business plan. Your next step is to sort through the legal issues of starting a small business, but where do you start? Making informed decisions in the early stages sets you up for success from day one. The following list covers some of the legal aspects of starting a small business and how our New Small Business Filing Plan can get you on the right track without the headaches of paperwork. Click here to learn more about this service right now or read on to discover the legal aspects our services take care of for you!

What type of business are you forming?

There are a few options: sole proprietorships, general partnerships, limited liability companies (LLCs), and corporations. When selecting a business type, there are a few factors to consider, such as limiting your personal liability, tax treatment and benefits, and sale of interests in the business.

• A sole proprietorship leaves your personal assets at risk in the event of a lawsuit against your business, meaning that you could lose your home, your personal savings, and other assets.

• General partnerships can leave you with more risk because not only are you responsible for your own liability, but you are also responsible for certain actions by your partner(s).

• A Limited Liability Company structure can protect your personal assets and limits personal liability if your business ever gets sued or declares bankruptcy. This means that your personal home and other assets won't be at risk. With an LLC, you can file your taxes as part of your personal income, but you will probably have to pay self-employment tax.

• An S-Corp is a corporation that, for federal tax purposes, is treated as a pass-through entity, meaning that S-Corps are taxed under Subchapter S of the Internal Revenue Code (IRC), which is where the name “S-Corp” comes from. An S-Corp can issue stock, has governors (board of directors, officers, and shareholders). Owners of an S-Corp enjoy the same personal protection from liability as with a C-Corp; however, an S-Corp passes its income and loss through shareholders, eliminating the “double taxation” of having to pay taxes as both the owner and the company. Each shareholder is subject to his or her own individual tax rate on profits and losses passed through to him or her, recorded as net income on a tax return.

• A C-Corp creates a legal entity that is entirely separate from the owner(s). Structuring your business as a corporation provides the greatest level of personal protection from liability, but they are more expensive and complicated to form, and they file a separate income tax on their profits.

Should you form an LLC or a Corporation?

Depending on how you plan to deal with tax issues, record keeping, funding sources, ownership, and the physical location of your business, the best way to decide what type of entity best suits your new business is to consult an experienced business consultant or attorney.

Some businesses register in states other than where they are physically located for tax or regulatory reasons, but decisions like these should only be made after consulting with a professional who can walk you through these considerations with your specific business in mind. Registering out-of-state can end up being costly as you will still be required to register your business in the state or province where it is located, which may mean additional fees, taxes, and other costs.

Will you need specialized permits or licenses?

Registering your business is not the same as obtaining the necessary permits and licenses, and there may be local regulations in the county or city where your business is located to consider, as well. Some permits and licenses are only issued by the county or city, and you will need to know what permits and licenses you will need. An experienced business consultant or attorney should be able to take your specific situation into account to give you advice on what licenses and permits you will need to open your new small business.

Will you hire employees or use independent contractors?

Depending on your level of control over how, where, and when they work, the IRS determines whether your labor force are employees or contractors. Additionally, the number of employees is a factor in determining your company's taxes, as well as determining the healthcare and human resource regulations your business will have to provide. Understanding how these regulations may affect your business is another great reason to contact a professional for advice as you build your new small business.

If you want to start getting the paperwork for your startup handled quickly, easily, and conveniently so you can focus on your business, call (208) 755-8335 or email me at debbie@debbieaferguson.com

Click here to learn more about my New Small Business Filing Package!

Five Things Every New Business Owner Needs To Do

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Starting a new business can be an exciting adventure, but many people get bogged down before they ever hang out an “Open” sign. There are many legal obligations to running a small business, and navigating the system and filing the proper paperwork the right way can stall your grand opening if done incorrectly.

That's why I have made it my business to help new Idaho businesses get off the ground. I've helped dozens of businesses in North Idaho with the legal paperwork required to start a small business. Here are some of the things that a small business in Idaho needs to get started:

CHOOSING A BUSINESS STRUCTURE

Whether your new company will be an LLC, an S-Corp, a C-Corp, or a sole proprietorship, you must decide on a legal structure for your business. There are pros and cons to each of these structures.

An LLC, or Limited Liability Company, protects you and your personal assets from liability if your business ever gets sued or declares bankruptcy. This means that your personal home and other assets won't be at risk. With an LLC, you can file your taxes as part of your personal income, but you will probably have to pay self-employment tax.

An S-Corp is a corporation that, for federal tax purposes, is treated as a pass-through entity, meaning that S-Corps are taxed under Subchapter S of the Internal Revenue Code (IRC), which is where the name “S-Corp” comes from. An S-Corp can issue stock, has governors (board of directors, officers, and shareholders). Owners of an S-Corp enjoy the same personal protection from liability as with a C-Corp; however, an S-Corp passes its income and loss through shareholders, eliminating the “double taxation” of having to pay taxes as both the owner and the company. Each shareholder is subject to his or her own individual tax rate on profits and losses passed through to him or her, recorded as net income on a tax return.

A C-Corp creates a legal entity that is entirely separate from the owner(s). Structuring your business as a corporation provides the greatest level of personal protection from liability, but they are more expensive and complicated to form, and they file a separate income tax on their profits.

REGISTERING YOUR BUSINESS NAME

Once you've decided on a structure for your business, you will need to register your business name with the Secretary of State of the state where your business is located. There are a few ways you can register your business name:

•  An Entity Name, which legally protects your business at the state level

• A Trademark, which legally protects your business at the federal level

• A DBA (Doing Business As), which doesn't offer any legal protection, but may still be required, depending on your location and business structure

• A domain name, which claims your business' web address. (optional, but recommended)

APPLY FOR A FEDERAL TAX ID NUMBER

Your federal tax identification number, also known as an EIN, allows you to legally hire employees, pay federal taxes, apply for business licenses, and open a business bank account. Your business will need an EIN if you plan on hiring and paying employees, filing employer tax returns, operating as a corporation, or use a tax-deferred pension plan.

APPLY FOR A STATE TAX ID NUMBER

Some states don't require a state tax ID number as they do not collect taxes from businesses, but tax obligations vary from state to state, so this may be another item to put on your checklist.

OBTAIN BUSINESS LICENSES AND PERMITS

Depending on the type of business you're starting, you may need to get licenses and permits at the state and federal level. State licenses and permits vary depending on your location and what your primary business activities entail.

PROTECT YOUR BUSINESS WITH INSURANCE

It's a good idea for all businesses to have some level of business insurance, for further personal liability protection, even with the protection of a specific business structure. Business insurance protects not just your personal assets, but can protect some of your business assets, as well. Some types of insurance are required by law - unemployment and disability insurance, for example - but it may be a good idea to purchase business insurance as well, to protect your new business from risks. Some common business insurance types are general liability insurance, product liability insurance, and commercial property insurance.

This list of five things will need to be completed before you can open a business bank account. If all of this seems daunting, DON'T PANIC! That's why I started my consulting firm: to help small businesses through every stage of their business, from start-up to flourishing! For just $199 (plus filing fees), I will do all the research, legwork, paperwork, notary, and filing of the forms you will need to complete the set up of your small business. Learn more about this service or contact me at (208) 755-8335 or email me at debbie@debbieaferguson.com