Charters are legal documents that create for-profit or nonprofit organizations. Frequently called articles of incorporation, a charter brings the organization into existence as a legal entity. Charters must be filed with and approved by the secretary of state’s office of the state where the organization is located. Bylaws are also legal documents, but they set up the internal structure and rules of the organization. That is, bylaws provide the framework for internal governance and day-to-day operations.
Charters: Creating the Organization
Because charters and bylaws serve different functions, they have different contents. A charter must include the name and location of the organization and state if it is a for-profit or nonprofit entity. The charter also describes the makeup of the board of directors and the ownership structure of the organization. The articles of incorporation of a for-profit business include the number, classes and par values of authorized shares. The name and address of the company’s registered agent should be included.
Bylaws: Structure and Governance
Organizational bylaws are usually adopted by the board of directors at its first meeting. Bylaws are written to fit the needs of a specific organization, but all bylaws share some general features. Bylaws state the times and locations of meetings of the board of directors and of shareholders. Bylaws provide guidelines for the orderly operation of the organization. For example, they set out voting requirements for shareholders so that disputes can be resolved.
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