Sutton Law Center

Provisions that Should Be in Your Corporate By-Laws

The corporate by-laws are like the rule book for your business.   They set the standard by which your business entity, as a whole, will operate.  The by-laws are a key element in creating and maintaining your status as a valid corporation.  They protect the owners and operators from personal liability.  Here our Reno corporate lawyer addresses several elements that should be included in your by-laws to achieve these goals.

Meeting and Minutes

The by-law should provide for the time for the annual meeting of the corporation’s board of directors.  It is usually specified to be on a particular time on a particular day in a particular month such as “10 a.m. on the second Thursday of May. “  You should provide for such a meeting to keep all of the corporate formalities in place.  There should also be a provision that provides for a special meeting of the board when necessary to consider certain matters specified in the by-laws.  One of the corporate matters that is often subject to a special meeting is the desire of the corporation to increase the number of members of the board of directors.  These special matters are often important ones that should not wait until the next annual meeting.  You should have written minutes each time you have a special or annual meeting.  The by-laws should also provide what the quorum will be for those meetings and how many votes are needed to take action at the meetings.

Officers and Directors

The by-laws should contain provisions for officers of the corporation.  Each provision should contain a general description of the duties of each officer.  There does not have to be a specific number of officers.  Most entities have a President, Vice President, Secretary and Treasurer, while others may have several Vice Presidents, each with a different responsibility.  This can be left to the discretion of those running the business.  The by-laws also provide for the Board of Directors.  They are the people who make the important decisions for the corporation.  The by-laws should state how many members comprise the Board of Directors and how they are chosen.  There should be a provision that details any increase in the number of board members and how a member will be replaced in the event of his or her resignation or death.  A clause should be included stating how an officer or director may be removed from his or her position.  Often removal can be “for cause.”  Though it may be difficult, it is best to try to define what is meant by this term to avoid uncertainty.

Shareholder Documents and Banking

If shares of stock in the corporation will be issued, the by-laws should provide for this corporate activity.  There should be a sample of the certificate as part of the by-laws which should also state how shares should be issued and how they are to be redeemed.  It should clearly be stated whether or not the shares may be transferred.  If they are allowed to be transferred, a procedure for the transfer is necessary.  There is often a provision stating that the shares of a company’s stock cannot be used as collateral for a loan nor may any encumbrances be placed on the stock.  Procedural issues should be included such as which member of the corporation will sign the certificates and how lost certificates will be replaced.  This is such an important matter that many corporations state how the certificates will be organized and where they will be kept.   Any desired provisions regarding corporate banking should be included in the by-laws.  Many entities actually state the particular bank that they will use and who is authorized to sign checks.  In the event that checks in excess of a certain amount must be signed by more than one member or officer, this should also be stated in the by-laws.

Loans

The topic of loans either to or from the corporation is an extremely important one that needs to be addressed in the by-laws.  There are times when a member or outside party may want to loan money to the business.  Conversely, there are occasions when the business wants to make a loan to a member or an outside entity. The by-laws need to make some provision for these occurrences.   At the very least, the by-laws should state that loans are subject to the approval of the board of directors.  You might want to state the voting requirements for such action or any limit to the amount of any such loan.   Loan activity without the proper formalities can have disastrous legal and financial consequences.  It will take only a minimal effort to prevent this from happening.

Random Provisions

Other provisions are often included in the corporate by-laws.  Some companies include the order of business at the annual meeting.  By-laws can include whether the members of the board of directors will be compensated for their efforts.  They often include a provision as to how the by-laws can be amended, if necessary.  If the corporation permits voting by proxy instead of by an in- person vote, that should be included.  For any meeting of the board or shareholders, the by-laws should contain the rules for how a notice of the meeting will be given to all who are expected to attend.  The by-laws can also state the company policy on the payment of dividends.

The corporate by-laws are a very important, but often overlooked, part of the organization of your business.  They should be prepared as early as possible in the life of your enterprise.  They will provide the structure that your business needs.  The by-laws are part of the corporate formalities that will ensure your status as an official corporation.  They are an integral element that should be in place so that any legal exposure will be faced by the corporation and not by its individual members.

To schedule an appointment with a Reno corporate lawyer at The Sutton Law Center call 800-700-1430 or 775-629-5273.

 

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