It is very important to the legitimacy of any company to be seen as having an actual life–that it is more than a hollow “shell” corporation. One of the more important steps in creating a full identity is ensuring that it has proper documentation, including the corporate charter (or formation document) and the By-laws, sometimes referred to as an Operating Agreement.
States require that all corporations create a document delineating the organization’s structure and operation details. This document is known as an operating agreement or corporate bylaws. A corporation’s bylaws usually include:
- Specifics regarding the organization of the corporate entity
- Role of corporations members and directors
- Specifics about the board of directors
- Details of shareholder meetings
- What events and/or processes will effectuate the end of the corporation
LLCs have similar requirements as corporations regarding operating agreements. An LLC’s operating agreement usually includes:
- The percentage ownership of each member
- How profits and losses will be distributed
- Fiduciary responsibilities of managers and members
- Member voting process and powers
- What events and/or processes will effectuate the end of the company
Corporations and LLCs should create an operating agreement or bylaws as soon as the entity is filed/registered with the Secretary of State. These documents are often requested by:
- Banks, when opening a corporate bank account
- Lenders, when trying to obtain financing
- Potential investors
- Attorneys and accountants
