What Are Corporate Bylaws, and Why Do You Need Them?

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AdobeStock_503316415-300x200If you have established, or are thinking about forming, a corporation in California, then you’ll need to create a set of corporate bylaws. This may sound like an unnecessary formality – especially if you are a start-up with just a handful of shareholders and employees. However, no matter the size of your corporation, bylaws are a necessity that can help protect you and your business. The experienced Los Angeles corporations lawyers at Structure Law Group can assist you in preparing corporate bylaws that will help keep your business on the right legal path.

The Purpose of Bylaws

Corporate bylaws serve as the governing rules for managing a corporation. A corporation’s board of directors is responsible for adopting, revising, and repealing bylaws. While the bylaws don’t need to cover every minute detail of the corporation’s day-to-day operations, they should provide a fundamental “roadmap” for how the business will be conducted.

It is crucial to distinguish corporate bylaws from the Articles of Incorporation. The Articles are filed with the California Secretary of State and establish the fundamental parameters of the corporation, such as its name and stockholder classes. On the other hand, corporate bylaws are an internal document and do not require filing with the state. If you need assistance with corporate matters or legal advice on bylaws and Articles of Incorporation, consult the experienced Los Angeles corporate lawyers at SLG.

Some of the common subjects addressed in corporate bylaws include:

  • the purpose of the corporation;
  • when and where the corporation will have its annual meeting of shareholders;
  • the process for calling regular and special meetings of the board of directors;
  • the process for electing the corporation’s directors and officers;
  • the process for removing the corporation’s directors and officers;
  • the duties of the corporation’s officers and managers;
  • the process for issuing stock to shareholders or members;
  • whether to indemnify the officers or employees for any actions they undertake on behalf of the corporation;
  • how to deal with a conflict of interest on the part of a director or officer;
  • the process for amending the corporate bylaws; and
  • the process for dissolving the corporation and winding down its affairs.

What Happens If There Are No Corporate Bylaws?

Strictly speaking, corporate bylaws are optional, at least in California. State law does not require a corporation to have bylaws. So what happens if a corporation neglects (or chooses not) to adopt bylaws?

The short answer is that the California Corporations Code establishes a set of “basic” bylaws that the corporation must follow. Essentially, these are the default bylaws that apply to a California corporation unless it adopts its own bylaws superseding those defaults. In some cases, the Articles of Incorporation may also set some basic rules–such as the number of directors–that govern the management of the corporation as well.

In practice, relying on California’s default rules, which can change over time, is not advisable for any business. Instead, crafting a well-defined set of effective bylaws should be considered a crucial step in the business startup process. If you require legal advice or assistance from a qualified Los Angeles corporations lawyer in creating these bylaws. Call SLG today at (310) 818-7500 or contact us online to schedule a consultation.