San Jose Business Lawyers Blog
Corporate bylaws are an important tool for ensuring the efficient operation of any business and helping to avoid internal conflicts, such as those relating to founder, director, officer and shareholder conflicts. Not all businesses are required to have corporate bylaws, but it is always a good idea to commit your business plans to writing and take advantage of California corporate law. Bylaws can reduce the opportunities for disputes between owners, shareholders, and corporate officers, which can cost time and money that most startup businesses do not have to spare.
Corporate Officers
Most corporate bylaws establish corporate officer positions. These are usually “c-suite” titles, such as Chief Executive Officer, Chief Operating Officer, Chief Technology Officer, Chief Financial Officer, and similar roles. Your corporate bylaws should clearly state what roles will be created, how they will be filled, and what the scope of responsibility is for each officer. You should also provide a process for arbitrating disputes between officers and replacing officers as needed.
Voting Rights and Procedures
There are many ways to document voting rights and procedures in a company. Voting rights and procedures can be taken care of in your Bylaws, Certificate of Incorporation, a stock purchase agreement, or Shareholder Voting Agreement. The shareholders of the company, which often include the co-founders of the company and other key team members, will have the most control over the company. But, the Board of Directors will also be empowered to run the company and do not always need the approval of the shareholders to act. Properly drafted corporate bylaws are one way or part of a solution to deal with voting rights, procedure, and apportionment among the company’s shareholders and board of directors.
Shareholder and Board of Director Meetings
Both the Board of Directors and shareholders must meet on a regular basis. Failure to do so can result in the business losing the legal protection of its corporate status, whether that is a corporation, limited liability company, or partnership. Having established procedures for such meetings in your corporate bylaws helps to ensure your business maintains this legal protection.
Corporate Formalities
Other corporate formalities can also be addressed in corporate bylaws to reduce the likelihood of disputes. These can include formal procedures for voting, how to establish a quorum, how to remove corporate officers or members of the Board of Directors, if and when to make stock offerings, and other important decisions. By establishing these procedures at the start, your business will be better positioned to make strategic decisions in the future.
Adhering to corporate formalities can also reduce the risk of your business losing its protected status as a separate legal entity. These include maintaining separate accounting, meetings of the shareholders and Board of Directors, maintaining corporate minutes, and executing written agreements for all transactions. The more organized and clearly documented these procedures are, the better protected your business will be.
Call Us Today to Schedule a Consultation with a Silicon Valley Business Attorney
Corporate bylaws are just one of many tools that can help your business run more efficiently. The experienced Silicon Valley business lawyers at Structure Law Group have helped many Silicon Valley startups formally organize the structure and procedures that allow their business to grow. Call (408) 441-7500 or visit our website to schedule a consultation. Don’t delay – the sooner you organize and protect your business, the better prepared you will be for a successful future.