Corporate bylaws are the set of rules that govern the day-to-day operations of a corporation. They are distinct from a company’s articles of incorporation, which provide basic information about the organization, such as the individual who organized the corporation and the physical location of its primary office. While the bylaws of every company are going to be different, they generally cover the same basic issues, including the corporation’s name and purpose, rules regarding the election of the Board of Directors, the procedures to amend the bylaws, and the duties of the people who run the company, among others.
Whether your company is required to adopt bylaws depends upon the state in which it was incorporated. While the state of California does not explicitly require a corporation to adopt bylaws or to file them with the state, California Corporations Code section 213 requires that every corporation keep a copy of its bylaws at its principal executive office and that they are accessible by shareholders during times during office hours.
Regardless of the legal requirements, the adoption of corporate bylaws can benefit a corporation in a variety of ways. For one, without bylaws, the default provisions of the California Corporate Code govern the way the corporation is run. While this may be acceptable in certain circumstances, it may result in unintended consequences in other cases. In addition, adopting corporate bylaws can act as evidence of following the formalities associated with incorporation, which may help shield members from personal liability in the event of a lawsuit.
Among the things that are generally included in corporate bylaws include:
- The name of the organization, its purpose, and its physical office location
- The membership of the corporation, including the procedures for selecting new members, each member’s voting rights, the types of members, and the process for removing members
- The officers of the corporation
- The frequency and notice requirements of meetings, as well the number of members that must be present to constitute a quorum.
- Compensation for directors
- The establishment of executive committees
- Rules regarding the issuance of shares
- Procedures for the amendment of bylaws
- A provision regarding conflicts of interest
Drafting corporate bylaws that effectively meet the needs of your organization often requires a thorough understanding of corporate law. Retaining the services of an experienced business attorney is the first step in ensuring that your bylaws accurately reflect your intention, are enforceable, and incompliance with California law.