What are Bylaws?

Bylaws are a set of rules and procedures that the members of a corporation set for themselves. For example, bylaws frequently include rules and procedures pertaining to how meetings will be conducted and how board members will be chosen. A corporation normally establishes bylaws at the time the corporation is formed.

The bylaws are an internal operating document for the corporation. Unlike Articles of Incorporation, bylaws are not required to be filed with the state. A corporation stores its bylaws with its meeting minutes and other resolutions.

Do bylaws need to be signed? Most states do not require a corporation’s bylaws to be signed. The typical corporate procedure involves formal adoption of the bylaws by a resolution at a meeting of the board of directors. Nevertheless, potential lenders may request a copy of a corporation’s bylaws, and the lender may demand a signature or other evidence that the bylaws are official. In this case, the corporation may execute a signed one-paragraph certification affirming the bylaws are used in the corporation.

Tips for Starting a New Business

1) Choose a business structure. The most common business structures are:

● Sole proprietorship: An unincorporated business owned by an individual. There’s no distinction between the taxpayer and their business.

● Partnership: An unincorporated business with ownership shared between two or more people.

● Corporation: Also known as a C corporation. It’s a separate entity owned by shareholders.

● S Corporation: A corporation that elects to pass corporate income, losses, deductions, and credits through to the shareholders.

● Limited Liability Company: A business structure allowed by state statute that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.

2) Choose a tax year. A tax year is an annual accounting period for keeping records and reporting income and expenses. A new business owner must choose either:

● Calendar year: 12 consecutive months beginning January 1 and ending December 31.

● Fiscal year: 12 consecutive months ending on the last day of any month except December.

3) Apply for an employer identification number (EIN). An EIN is also called a federal tax identification number. It’s used to identify a business. Most businesses need one of these numbers. It’s important for a business with an EIN to keep the business mailing address, location, and responsible party up to date. IRS regulations require EIN holders to report changes in the responsible party within 60 days. They do this by completing Form 8822-B, Change of Address or Responsible Party, and mailing it to the address on the form.

4) Have all employees complete these forms:

● Form I-9, Employment Eligibility Verification U.S. Citizenship and Immigration Services

● Form W-4, Employee’s Withholding Allowance Certificate

5) Pay business taxes. The form of business determines what taxes must be paid and how to pay them.

6) Visit your state’s website. Prospective business owners should visit their state's website for info about state requirements.

The Principal-Agent Relationship

The principal-agent relationship is formed when one party (the agent) agrees to act on behalf of and subject to the control of the other party (the principal). There are three requirements for forming a principal-agent relationship (which can be remembered by the mnemonic “ABC”): assent, benefit, and control.

● Assent: the principal and agent agree to create this agency relationship.

● Benefit: the agent will act for the benefit of the principal

● Control: the principal has the right to control the ultimate objective of the agent’s work.

Note some important things that are NOT requirements to forming a principal-agent relationship:

● Intent is not required. Two people can enter into a principal-agent relationship without even knowing it.

● Writing: the formation of the principal-agent relationship does not need to be in writing. A simple conversation between two people can give rise to a principal-agent relationship.

● Compensation is also not required. The agent can be gratuitous.

What are the ramifications of the principal-agent relationship? If a principal-agent relationship exists, the principal may be liable for contracts that the agent enters into on behalf of the principal. In addition, a principal may also be liable (vicariously) for tortious misconduct committed by the agent.