The Bylaws of the corporation govern how the company is governed in a c-corporation. Generally, in an LLC, the Operating Agreement is used to govern these same actions and rights. You should seek advice from your legal counsel as to the individual requirements of the state of domicile for the company under consideration.The Bylaws define the workings of the corporation: annual and special meetings of the shareholders, notices of meetings, how many must attend to conduct business (a quorum is typically the correct answer), proxies and voting, maintenance of a stock list, the number and term of office for directors (this is the most frequent reason for changing Bylaws), participation in meetings, powers, compensation for directors, committees of the Board of Directors, offices of the corporation (president, treasurer, and secretary are generally the three that must be filled), removal of officers, stock certificates, stock transfers, replacement of lost certificates, notices, waivers, the fiscal year of the corporation, and indemnification of directors. Bylaws are never filed with any governmental agency. They are the company’s internal document on how things are organized. However, they may require update any time a new round of capital is authorized by the shareholders. All changes to the Bylaws must be approved by the shareholders.The important points are as follows:

  • Annual meetings are mandated for the corporation
  • Special meetings can be called by the shareholders or Board
  • Each meeting must be preceded by a notice to all shareholders with sufficient time to review the material and to decide if they wish to participate (typically five days)
  • A quorum must be present before any business can be conducted in a meeting of the shareholders.
  • The order of succession in the event the president is not present
  • How votes (the ratio of which is decided in the Articles of Incorporation) are taken in person or by proxy
  • A complete list of shareholders must be present at any meeting of the shareholders. Only shareholders in good standing may vote. Shareholders in good standing can not be denied a vote.
  • How shareholders may consent to action in lieu of a meeting
  • The bylaws set the number and term of directors, generally set by a range (i.e. no less than three, no more than nine, and odd in number). Terms are generally given in years, but may be require amendment based on the terms of a Stock Purchase Agreement, which will be implemented through the Articles of Incorporation.
  • The process for filling vacancies on the Board
  • When and how the Board shall meet for its regular meetings (generally monthly or quarterly, in person and by teleconference)
  • Powers of the Board including:
    • Declare dividends
    • Acquire assets
    • Obligate the company for contracts, etc.
    • Remove officers of the company
    • To appoint officers of the company
    • Create compensation plans for the company (stock, options, warrants, bonus, etc.)
    • Bind insurance for the company
    • Manage business for the company
  • Compensation of directors
  • The bylaws define the Board’s ability to create committees of the Board (compensation, nomination, finance, etc.)
  • The bylaws define the positions and roles of officers. Generally, the president, treasurer, and secretary are filled, but others may be required, such as vice president.
  • The bylaws dictate the style and substance of a stock certificate, including its replacement if lost. Once upon a time, stock certificates were mandatory, but increasingly we see companies issuing stock and maintaining a detailed capitalization table instead of physical shares. This is why it is critical that you frequently review the cap table of any investment to ensure mistakes have not been made.
  • The bylaws define how shareholders may waive certain rights, including, and most commonly, notice. In the event of a special meeting for which the required notice period was not observed (or not possible), the shareholders may elect to waive notice so that business may be conducted at the meeting.
  • The bylaws define the form of an acceptable signature, including electronic.
  • The bylaws set the fiscal year for the corporation.
  • The bylaws generally indemnify the Board Members so long as he/she has acted in good faith in a rational manner.
  • The Board members may incur expenses on behalf of the corporation for which the corporation is responsible for reimbursement, typically this is done in advance.
  • The corporation may bind insurance for itself or to protect the directors, including Errors & Omissions and Directors & Officers insurance.
  • The Bylaws may only be amended by a vote of the shareholders.

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