Corporate Bylaws are rules and regulations adopted by your corporation’s board of directors to provide a framework for its operation and management. Bylaws can be crucial in preventing misunderstandings between the owners of a company regarding how the company is being managed and are too often treated as a boiler-plate document.A corporation’s Bylaws should not be confused with its articles of incorporation, which is a public document and must be filed with the secretary of state. The State of California does not require corporations to file their Bylaws with the state. However, corporations are required to prepare a set of Bylaws which must be kept at their executive offices or principal place of business.
What Should Be Included In Your Corporate Bylaws?
The purpose of your Bylaws, amongst other things, is to specify the number of directors that will serve on the board, what quorum is required, how voting will take place, when meetings will be held, appointment of officers, indemnification, and restrictions on transfer of stock.
Here are the top 5 provisions you should include in your Corporate Bylaws:
- Board of Directors: A board of directors technically runs a corporation and is legally required in California. Your bylaws need to address the number of directors you have; how they will be elected/removed; and what they can delegate. It is generally advised to have an odd number of board members to prevent having deadlock issues.
- Shareholders Meetings: Details of when meetings of your corporation’s shareholders will be held, what notice will be given, what business will be conducted during these meetings, what quorum is required, how voting will take place, will become critical to the extent your corporation faces issues that will require shareholder approval.
- Officers: What officers will the business have? California law requires that a corporation have a president, treasury (or chief financial officer), and secretary. These can all be the same person or one person can hold more than one office, but the duties of each office should be delineated in the Bylaws. You can also provide for other positions such as chief technology officer or chief marketing officer.
- Indemnification: Corporate Bylaws should contain an indemnification provision for its directors and officers. Most sophisticated directors and officers will require this provision. Generally speaking, this clause spells out the circumstances under which the corporation will indemnify and hold harmless a director or officer for his or her actions to the extent the director or officer is sued in such capacity.
- Restrictions on Transfer of Stock: Most boiler-plate bylaws do not include any restrictions on transferability of stock, which can become a critical issue the corporation. A right of first refusal provision requires that a shareholder offer to sell its stock to the corporation (and sometimes to the other shareholders) before it can transfer such stock to any third parties. This provision is essential because it protects shareholders from potentially ending up with new owners with whom they may not wish to be in business.
An experienced corporate attorney can help prepare your Corporate Bylaws, and ensure that your corporation is in compliance with all state and federal regulations. To schedule an appointment with our highly reputable and experienced corporate attorney in Los Angeles, please call Afshin Hakim of Hakim Law Group, at 310.993.2203 or visit www.HakimLawGroup.com for further information.