Corporate bylaws are a critical component in the foundation of any corporation, partnership or association. Generally, the bylaws establish the rules for internal operations and governance of your company. While business owners have a large degree of control when it comes to the bylaws, they must be in compliance with state law. Some states have strict mandates on what information must be included, while others may not specify exactly what must be covered and there may not be a set format. In California, there are a number of default statutory provisions that will control the internal governance of your company unless you have elected to alter those default provisions with customized bylaws. There are certain things that are typically covered in a company's bylaws.
Bylaws often set forth what officers the company is to have, such as president, secretary and treasurer, what the duties and responsibilities are for those officers, and how the officers are elected. It will also set forth the term of office such as a one, two, or three year term. The bylaws also address the operation of the company’s board of directors. The bylaws would set forth how many board members are allowed or required and their terms of office. Most of the time, the shareholders will elect the board of directors, and then the board members will elect or appoint the officers of the company. The bylaws establish this election procedure. Consequently, the officers report to the board, and the board reports to the shareholders.
Other matters that are often found in the bylaws include the procedure for notifying the board of an upcoming meeting and the timeline for doing so. In addition, the bylaws can establish the number of board members that are required to be present at a meeting for there to be a “quorum” in order to do business and how many votes are needed for something to be approved. One thing that likely will not be in the bylaws but you might want to consider if there will be multiple owners of the business, is a buy-sell agreement. A buy-sell agreement would outline rights and responsibilities for each owner and generally would provide the right or option for the company or other shareholders to buy out one of the co-owners’ shares.
It’s important to consult with a business law attorney to make certain that your bylaws are in compliance with all applicable state statutes, and that your company is actually following the procedures set forth in your bylaws. Your attorney may also help you identify potential pitfalls and minimize any future risks that might harm your company down the line.
The business attorneys at Schneiders & Associates, L.L.P. can help guide you through the process of understanding, creating or amending your company’s bylaws to ensure they comport with you desires for efficient corporate governance.