Businesses can change drastically over time. When the officers or directors first decide to incorporate, they may not fully understand what they want their business to do or how it should do it. As the business grows, original plans may not work for the business any longer. Officers and directors may also move on to other business ventures or pass away. Any of these events may trigger the need to adjust a business’s articles of incorporation or its bylaws.
Bylaws may also need to be changed to clarify processes or adjust outlines for procedures based on what is actually happening in the corporation.
Changing bylaws and articles of incorporation is actually easier than many people may realize, but it does take some time and effort. It is important that a business’s bylaws and articles of incorporation keep up with business changes, and periodic reviews and adjustments can help with this process.
Articles of incorporation are legally necessary documents to create a corporation, whether it is for-profit or nonprofit. They are required in every state. They are filed with the Secretary of State and must contain required information laid out by statute. Usually, information required in the articles of incorporation will include:
Each state has slightly different requirements, so it is important to consider where the business is being incorporated before filing the articles of incorporation.
Being incorporated means that the business is a separate legal entity compared to the company’s directors, officers, and owners. There are a variety of asset protection, long-term planning, and tax advantages to incorporation.
If any of the necessary information to incorporate in a specific state changes, then officers or directors will need to adjust the articles of incorporation to reflect how the business is actually operating. Changes that affect the articles of incorporation usually have a significant effect on the business, such as changing the business’s name or business purpose. Changes to the number of stocks or how the stocks are valued would also necessitate a change to the articles of incorporation.
The most common reason that businesses need to change their articles of incorporation, however, is that there has been a change in personnel for the business. The articles of incorporation often list the officers, directors, or members by name, so when someone moves on from the business that filled one of these significant roles, the articles of incorporation should be changed. Although a personnel change may have a significant impact on the business, changing a name in the articles of incorporation is a relatively straightforward process.
Failing to change articles of incorporation appropriately can ultimately lead to a violation of state law. Such a violation can actually allow the Secretary of State to invalidate the business as a separate legal entity in some serious circumstances. Avoiding this legal nightmare is as simple as amending the articles of incorporation.
Changing contact names and addresses appropriately allows the Secretary of State to contact a business to notify its representatives of any legal matters, tax issues, and other important information. If officers or directors do not change this information, then third parties will have no valid way to contact the business, which can be a problem from both a practical and legal perspective.
Sometimes, getting everyone to agree on a change to the articles of incorporation can be the hardest part of amending this legal document. Use the steps below to change a business’s articles of incorporation.
Depending on the state in which the business is incorporated, unanimous agreement from all the shareholders may be required to change the articles of incorporation. Most states have changed this older, common law rule, and now only require a majority of shareholders to agree to change the articles of incorporation.
Sometimes, however, only some shareholders can vote. In some states, officers or directors may change the articles of incorporation even if only these voting shareholders have concluded that they want to make changes. In other states, the shareholders may not even need to approve the change. It is important to check the requirements for a specific state when considering making changes to a business’s articles of incorporation.
The business’s bylaws should also include provisions that specifically lay out how to amend the articles of incorporation according to internal and state law requirements.
Changing the articles of incorporation can be as simple as finding a copy of the business’s original articles of incorporation and making the suggested changes in pen or pencil. Changes can be straightforward, such as a name or address change, or they can be complex, such as changing the entire shareholder structure.
There may also be specific notice requirements that must be met for the meeting. For example, notice of the meeting and the potential change to the articles of incorporation may need to be sent out a certain number of days in advance. The notice may need to specifically state that the board will be discussing a change to the articles of incorporation and a summary of the proposed change. The bylaws are a good place to look for these requirements, but they may be provided by state statute as well.
Once you have made the changes and provided adequate notice, present it to the board of directors for discussion, voting, and approval according to the bylaws. The change should be voted upon formally and reflected in the board minutes.
In addition to internally approving the amendment, the business must also file it with the Secretary of State. Usually, the Secretary of State for the state in which the company is incorporated will have a link on their website that provides information about filing amendments.
For example, Ohio has a specific form that must be used for amendments to the articles of incorporation. Other states do not have mandatory legal forms, but require the business to provide specific information as laid out by statute. Usually, the information necessary will be listed on the Secretary of State’s website. Directions for filing will also be included on the specific form or the Secretary of State’s website.
Keep in mind that the amendment is usually attached to the original articles of incorporation. The first articles never really “go away.” Instead, they are altered by the amendment.
Corporate bylaws are often much more in-depth compared to the articles of incorporation. They provide specific information about how a corporation will be run, including the rights and responsibilities of those who oversee the corporation. The articles of incorporation provide the general outline for the business, but the bylaws fill in the details, so those who run the company know how to carry out the duties and responsibilities associated with their roles as directors, officers, or members.
The articles of incorporation are the primary legal document for the company, but the bylaws complement the articles of incorporation by providing additional details, procedures, and dispute resolution processes.
Bylaws often include the following information:
The bylaws are often extremely detailed over time, but they may not be comprehensive when a business first develops them. Companies often change or add to the bylaws to reflect the actual practices of the business.
From a practical standpoint, the corporate bylaws serve more as an internal roadmap for directors, officers, and members. While articles of incorporation are used because they are legally required, bylaws may not be legally required depending on the state of incorporation.
Even if bylaws are not required, they provide a helpful guide for the business, so it is a good idea to create them. The court will often look to the bylaws to determine practices and procedures if there is a dispute or conflict as well, so creating this legal document is important.
The amendment process for corporate bylaws is usually easier than changing the articles of incorporation because the approval or voting requirements are often less stringent. Bylaw amendments also do not have to be filed with the Secretary of State, so businesses can skip over more formal requirements and filing fees. This convenience factor often makes bylaw amendments far more common than amending the articles of incorporation.
Modifications may be required as the business grows and develops. Creating procedures that work for a particular business takes time, which means that the bylaws may change periodically as the company determines which methods work best for voting, meetings, elections, and other internal processes. Bylaw amendments may not involve drastic changes like articles of incorporation amendments.
The bylaws should already lay out voting processes and procedures for amendments. Most shareholders and board members are usually able to vote, but those who can vote and how much weight their vote may carry will vary by company.
There are no specific voting requirements regarding bylaws in most circumstances, so the business is free to develop its own.
Usually, a copy of the proposed bylaw change will be available at the meeting before voting on the modification. The proposed changes can sometimes be circulated at the voting meeting or just before the voting meeting as well.
Again, notice requirements may vary by company because these requirements are often laid out in the bylaws.
Once the board and/or shareholders have voted, the board will need to prepare a written resolution of the changes. A corporate resolution is a way to formalize a final decision of the board. It is often kept with the internal corporate records.
Resolutions can be used for other matters that do not involve changing the bylaws as well, including approving budgets, borrowing funds, and declaring dividend distributions.
The resolution should then be integrated into the existing bylaws to avoid confusion in the future about which version of the bylaws is valid.
Keeping a complete copy of the bylaws and making it available to members, shareholders, and directors can be a good way to avoid conflict and ensure that everyone is on the same page regarding procedures, processes, and duties.
Amending the corporation’s bylaws or articles of incorporation to reflect changes or actual practices of the business is a great way to keep the business running smoothly. When everyone understands their roles and responsibilities, there is less potential for conflict. Amendments can also be a good way to avoid problems from a legal standpoint as well.
Legal forms are available to create articles of incorporation and bylaws. Creating and filing amendments can be just as easy. LegalNature can help you with the documents you need to create your corporation and keep up with necessary changes as your business grows and develops. Click here to view our business formation and amendment-related documents and get started now.