Top Provisions to Include in Corporate Bylaws
California law requires corporations to establish and maintain a set of bylaws that dictate corporate governance. California does not require corporations to file these bylaws with the state, but they must be prepared and kept at either the executive offices or the corporation’s principal place of business. Below, we discuss some of the key provisions that should be included in any corporation’s bylaws. If you need advice or representation concerning your corporation, or if you are dealing with a business dispute in Southern California, call a seasoned and qualified Ventura business law attorney.
Board of Directors
California law requires corporations to have a Board of Directors. The Board technically runs the corporation, overseeing all the officers of the company and typically chiming in on matters of strategy, planning, and corporate governance. The bylaws should include the number of directors, the process for adding or removing directors, the qualifications required for directors, and the length of terms for directors. The bylaws should also specify how and when Board meetings will be called, as well as participation requirements (for example, the quorum of directors necessary to make certain types of decisions).
If your corporation has members, your bylaws should establish the type of membership for your corporation, the voting rights of the various types of members, and the procedures for adding or removing members. Members can be individuals, organizations, other corporations, partnerships, or any other type of entity unless otherwise specified in the bylaws. Typically, members can appear at meetings of the members either in person, by phone, by video call, or other means that allow members to hear each other.
Corporations have shareholders to whom the corporation owes fiscal duties. The bylaws should establish processes for holding shareholder meetings, including scheduling annual and special meetings, transmitting notice for shareholder meetings, orders of business that will follow, quorums for voting, and other relevant matters. The annual meeting of shareholders is arguably one of the most important functions of any corporation, especially for corporations with a large number of shareholders.
Your bylaws should establish the mechanics of shareholder ownership. Note how stock certificates will be issued, who will be entitled to own stock, how stock can be transferred, and the rights and responsibilities different types of stockholders will wield (voting, dividends, redemption, anti-dilution, etc.). You may want to include provisions like a “right of first refusal” so that your corporation can buy back stock from a shareholder before they can sell their stock to a third party.
A corporation’s bylaws should include a provision indemnifying directors and officers from liability generated by the corporation. Corporations are meant to shield the owners from liability for corporate debts and other matters. Sophisticated directors and officers will demand to be indemnified to the fullest extent permitted by law. The provision will spell out how the corporation will indemnify and hold harmless directors or officers for any sued in that capacity.
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