Washington Corporate Bylaws

Corporate bylaws are what govern a Washington corporation. The document is written by your initial shareholders. It addresses two primary areas:

  • Ownership (your shareholders)
  • Management (structure, rights, responsibilities)

Bylaws are not required by law (except for publicly traded companies, which are subject to SEC laws). However, it is a mistake to consider corporate bylaws an unnecessary component of starting your company. Bylaws are crucial to avoiding internal and legal problems in the future. This is especially true if you are forming a corporation with multiple shareholders.

Consider this scenario: you form a Washington corporation with three other shareholders. Your business takes off, and one of your partners decides to sell their shares to your main competitor. Now your competition has an ownership stake in your company. This type of scenario could have been avoided by having detailed bylaws that limit how your company stock is sold (such as a measure requiring shares to be offered to other shareholders first).

Think of your Washington corporate bylaws as a blueprint for how your company operates now and in the future.

What to Include in Washington Corporate Bylaws

Your bylaws can be as extensive or as concise as you need them to be. There is no one-size-fits-all approach to writing bylaws, since every corporation is unique. However, there are significant areas that all bylaws should address.

Shareholders

Ownership of your corporation is laid out in your Washington corporate bylaws. Your initial shareholders should be listed here, their complete names and addresses. In addition to identifying information, you need to also list what each member contributed to the corporation in exchange for their shares of stock.

When listing capital contributions, it is important to list the precise value of all cash and assets a shareholder has contributed. While it is sometimes difficult to match the value of an asset to the value of shares of stock, you should be as precise as possible to give fair market value in the exchange. If a shareholder contributes an asset worth $100,000 in exchange for stock worth $10,000, a court may later determine that this is not a proper exchange and that the shareholder was merely attempting to avoid paying taxes on the asset by giving it to the corporation.

If you have different classes of stock (Common Stock and Preferred Stock), then you need to list the number of shares of each that your initial shareholders have received. In addition, you need to carefully detail the exact rights that those shares come with.

Board of Directors and Corporate Officers

A Washington corporation is managed by its Board of Directors and its corporate officers. These individuals should be designated in the bylaws, and their roles and duties should be carefully and thoroughly detailed.

Directors are responsible for appointing the corporate officers and managing the company’s interests. They are vested with fiduciary responsibilities, such as acting in good faith and remaining loyal to the company (in other words, not making financial decisions that benefit the director at the expense of the company).

Officers include:

  • Chief Executive Officer: the highest-ranking company executive (the boss)
  • Chief Operations Officer: second in command who oversees daily operations
  • Chief Financial Officer: top executive in charge of corporate finances

The CEO answers directly to the Board of Directors. Directors and officers work in conjunction to steer the corporation (hopefully) to success.

Buying and Selling Stock

Your Washington corporate bylaws should address any rules for buying and selling shares of stock. For example, if a shareholder wants to sell their stock, are they required to offer those shares first to other shareholders? If the shares can be sold to outside individuals, does the sale require the approval of the Board of Directors?

As well, bylaws should outline what happens to a shareholder’s stock if the shareholder dies or becomes incapacitated. While a rare occurrence, consider what might happen if a shareholder is in an accident and falls into a coma. An important shareholder meeting is approaching and decisions that require unanimous votes are on the agenda. What will your shareholders do in such an event?

These types of scenarios are precisely what your bylaws are for.

Amendments

Washington corporate bylaws should set out a procedure for making amendments to the bylaws. How are amendments proposed? How many votes are required to approve an amendment? Who is allowed to vote?

This is a particularly important section of your bylaws. Failing to lay out an amendment plan can wreak havoc as your company develops.

Dissolution

Even if you never intend to dissolve your Washington corporation, you should still lay out a specific procedure for dissolution. You can, in fact, specify that the corporation cannot be dissolved, even by a unanimous vote of its shareholders (this does not mean that your corporation cannot be administratively dissolved by the Secretary of State).

Having a plan for dissolution is always a good idea. Business plans change, and so do business owners. Better to plan now than be stuck later.