Delaware Corporation Bylaws – What Needed To Comply?

Forming a corporation in Delaware means there are certain legal, regulatory, and compliance areas you need to meet and bylaws are one of the most important areas to focus on.

Delaware corporation bylaws set out the rules and procedures for how your corporation will be governed. It’s important to make sure your bylaws fit your chosen business model and are clear enough so that they can be easily followed and interpreted.

In this article, we’ll give you an overview of Delaware’s corporation bylaws and what to consider when drafting your own.

Overview of Delaware corporation bylaws

What are corporation bylaws?

The bylaws of a corporation are an internal document that contains basic operating rules, principles, and formalities that corporations must follow to stay active.

The Delaware General Corporation Law (DGCL) requires that all corporations have bylaws in place, which should be planned for and drawn up as part of the incorporation process.

The bylaws must comply with the DGCL, but they can also include any additional provisions that the corporation’s board of directors deems necessary or desirable. Delaware corporation bylaws requirements can be as simple or as complex as the corporation’s board of directors wants them to be.

You should not mistake the bylaws for the Articles of Incorporation (Certification of Formation) as the latter only outlines the basics of the corporation: the name of the company, the name of the Registered Agent, and the authorized number of shares the corporation can issue, while bylaws detail a corporation’s structure and daily operations.

What are the purposes of corporation bylaws?

There are four primary purposes of bylaws:

• To establish the procedures for the organization and governance of the corporation
• To provide for the regulation and management of the corporation’s internal affairs
• To authorize the creation of various boards, committees, and officers, and to define their authority and responsibilities
• To set forth the rules for shareholders’ and directors’ meetings, voting rights, and other aspects of corporate governance

What to include in your bylaws?

Delaware corporation bylaws can cover a wide variety of topics, but there are 4 key areas that should be addressed: board of directors, officers, shareholders, and bylaws amendment

Board of Directors (BOD)

The Delaware General Corporation Law (DGCL) requires that all corporations have a board of directors to oversee daily operations and decision-making.

The bylaws should include provisions on the governance, structure, and operation of your BOD including, but not limited to:

(1) Number of directors and how that number may be amended

(2) Description of the BOD’s main function

(3) Election rules and qualifications to be elected as directors

(4) Details of their duties and responsibility

(5) Rules around BOD meetings: frequency, types of notice, quorum requirement, and the means by which meetings may be held (e.g., in person, via telephone and/or online meeting)

(6) Declaration whether the board can act by written consent in lieu of a meeting

(7) Other information such as agendas, executive committees, and remuneration

Officers

The information of officers (e.g., president, secretary, and treasurer), who will handle the day-to-day tasks of the corporation will also be set forth in the bylaws, indicating the provisions on officers’ selection, authority, and duties.

(1) Titles of the corporation’s officers and how they are elected, appointed, and removed

(2) Authority and duties of the officers

(3) How often do officers meet and what type of notice is required for meetings

Shareholders

Delaware’s corporation bylaws also contain provisions on shareholders’ rights and privileges, including:

(1) Number of shares each shareholder is entitled to own

(2) Matters such as classes and voting rights, stock certificates, and ownership

(3) Information related to dividend, declaration, and transfer of shares

(4) Rules for holding annual board meetings (i.e., date, time, and place) and other relevant information such as notice, quorum, proxies, shareholder actions, and more

(5) Indication of what happens when a shareholder dies or becomes incapacitated

(6) Other rights such as dividend rights, rights to inspect corporate books and records, and election rights

Bylaws amendment

It’s important to include provisions on how the bylaws can be amended in the future, as well as what type of approval is required for such amendments.

For example, Delaware law requires that any amendment to the bylaws that would affect shareholder voting rights must be approved by a two-thirds vote of the shares entitled to vote.

(1) Procedures for the Amendment of the Bylaws

(2) Any other principles set by the corporation

For more information about what to include in your bylaw, refer to the Delaware corporation bylaws template here.

Conclusion

Delaware corporation bylaws are one of the stringent compliance rules that corporations must follow.

If you’re ready to start your own corporation, we can help with the Delaware company formation process for both S Corp and C Corp. Don’t hesitate to contact us at service@bbcincorp.com or chat with our friendly consultant for practical advice.