What are Bylaws? (and Who Cares?)
This article will answer the question, “What are Bylaws?” A question which I am sure is foremost in all of our minds. This article will also answer the question as to exactly ‘who’ cares about Bylaws, and why Bylaws are so critical to a corporation.
What are Bylaws?
Every corporation, whether incorporated and registered in Delaware, Massachusetts, or some other state, should have Bylaws. This document establishes the corporate authority of the corporation, to include the following:
- the name of the corporation
- the law under which the corporation abides
- the name of the Registered Agent and where that office is located
- where the corporation is located
- whether the corporation may conduct business in other states
- Shareholder Meetings
- How often
- How notice is to be given or waived
- Where held
- When special meetings can be conducted
- What constitutes a quorum of shareholders
- Can proxies be used?
- The number of votes per shareholder
- Availability of the Stock Ledger and List of Shareholders
- What happens when a shareholder cannot attend a meeting?
- Can teleconference, phone, or other forms of conducting a meeting be used?
- Is an annual statement to be produced?
- Directors of the corporation
- How many, do they need specific qualifications, and how are directors elected?
- What are the powers of the company’s directors
- What happens when a director’s seat is unavailable?
- Meeting requirements, quorum and other issues related to voting
- Creation of committees
- What happens when a director cannot attend a meeting?
- Can teleconference, phone, or other forms of conducting a meeting be used?
- Are directors compensated?
- How are directors removed?
- Officers of the Corporation
- Name the Officers that the corporation will use and define those roles
- Stock
- Will stock certificates be used?
- Can stock be transferred?
- Dividends
- How are dividends paid out to shareholders
- Miscellaneous
- Will insurance be required to be purchased and maintained?
- How will corporate records be held by the company, e.g., a corporate book or corporate kit?
- Does the corporation use a seal approved by the Board of Directors?
- Who may executed contracts and other legal instruments?
- Must notice for various meetings be given, and if so, can notice be waived?
- How can the Bylaws be amended?
After all…Who Cares About ByLaws?
The truthful answer to this question is, “not many people.” However, there is a small subset of the population to whom Bylaws matter a great deal, namely, to owners, shareholders of corporations. Bylaws matter because they represent the nitty gritty of the corporation’s attempt to explain who can do what and how they can do it. Properly drafted, and more importantly, understood Bylaws can mean the difference between avoiding future fights between shareholders about misinterpretations of their powers in the corporation or spending years in court trying to hash out what was meant by a specific provision in the Bylaws, or trying to defend why the Bylaws were not followed in the first place.
Clearly, Bylaws are all important. In my humble opinion, Bylaws for a corporation should be drafted by an attorney instead of an online service. The cost difference is minimal, but the product from an attorney nine times out of ten is superior. Keep in mind that Bylaws are based on law, in Massachusetts for example, Bylaws are based upon the rules which govern corporations in Massachusetts. An attorney is trained to interpret existing laws, and to research case law when an interpretation of those laws is not so straightforward. The result is a document that is based upon the experience of the attorney, that attorney’s knowledge base, an interpretation of the existing Massachusetts law, and case law when necessary. Contrast the role the attorney plays in the drafting of Bylaws with that of an online service which asks basic questions to narrow down appropriate phrases to use in the Bylaws. While the online method works to a point, the strategy ultimately fails because you (the person interacting with the software) never has the opportunity to have each step of the process explained to you so that you can understand why you are choosing a given answer.
Bylaws are the structural underpinning that serves as a guide to shareholders as to their respective rights in the corporation. Bylaws are all important and should be done right.
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