29 Sep What Are the Governing Documents for a Corporation?
By: Barry E. Haimo, Esq.
September 29, 2016
What Are the Governing Documents for a Corporation?
Corporations can grow exponentially, over continents, and enjoy perpetual existence beyond the lives of the corporation’s founders. So as leadership changes hands and different issues arise, how can a corporation be governed and managed in a consistent manner? How do we, as shareholders or stockholders, know the standards policies and procedures of the corporation?
When a corporation is formed in Florida, the state requires only the Articles of Incorporation to be filed, which are discussed below. There are other, more important documents to prepare as well that outline how the corporation will be run and for what purpose. These documents also set forth policies and procedures for leaders and managers to refer to for future successors for years to come. They also address how shareholders can buy-in and sell-out. These documents are referred to as the Bylaws, Shareholders’ Agreements, and Buy-sell Agreements.
Articles of Incorporation
The Articles of Incorporation, often called the “certificate of incorporation” or “corporate charter,” establishes your corporation with the state. Each state has a different process for filing this document. In Florida, you have to file this document with the Department of State Division of Corporations.
The following must be included in the Articles of Incorporation:
- Name/Address of the Corporation
- Effective Date
- Purpose of Corporation
- Number of Shares That Can Be Issued
- Name/Address of Agent for Service of Process (who will accept legal documents for the corporation in the event that it is sued)
- Name/Address of Each Officer/Director
- Name/Address of Incorporator
There is a small fee for filing this document, but it can be submitted online or by mail. Florida offers different documents for for-profit corporations and non-profit corporations.
What Are Bylaws?
Bylaws provide more specific instructions and guidelines for how a corporation is governed. While Articles of Incorporations have a standard format and are generally a “fill-in-the-blank” document disclosing only the officers and directors, principal place of business and registered agent, the bylaws are drawn up from scratch to fit the needs of the corporation so as to reflect policies and procedure.
Corporations are also not required to file its bylaws with the state. The state statute governs the corporate governance rules relating to all aspects of the business by default.
That’s why it’s important to prepare documents memorializing your preferences with respect to internal governance. They are typically prepared and executed by the corporation’s original directors and founders.. They are strictly an internal document that can be amended from time to time as the business evolves, and are very necessary for any business or organization.
What Policies Are Included in Bylaws?
Bylaws have different sections to address the ways in which a corporation is run. A typical list of these sections, which are commonly found in different sections called articles, includes:
- Principal Place of Business
- Meetings of Directors
- Executive Board of officers
- Committees and Subcommittees
- Qualifications to serve as officers, directors and committee members
- Indemnification of Directors and Officers
- Amendments to the Bylaws
Can Changes Be Made to These Documents?
As corporations grow, their mission and/or policies may change. These changes can be updated and amended to both the Articles of Incorporation and the Corporate Bylaws. As with the initial filing, there is a filing fee for amending the Articles of Incorporation. The procedures for making amendments to bylaws are usually outlined in the bylaws. In most cases, shareholders and directors vote on the amendment.
What Are Shareholders’ Agreements?
Shareholders’ Agreements are documents that list and describe the arrangements made between partners or shareholders. Shareholders’ agreements also typically include the rights, privileges, and protections bestowed upon the shareholders, as well as any obligations that shareholders have to the business. The agreements include the overall management and operations of the company.
Shareholders’ agreements are important to establishing the foundation of your relationship with your shareholders; these documents keep your business transparent and held accountable for its promise to the shareholders.
Shareholders’ agreements have different sections to address the ways in which a corporation is run. A typical list of these sections, which are commonly found in different sections called articles, includes:
- Identity of the shareholders
- Corporation’s Principal Place of Business
- Shareholders’ voting procedures
- Shareholders’ threshold voting requirements (Quorum, Notice, etc.)
- Transfers of shares to third parties and amongst shareholders (rights of first refusal)
It’s important to set up these documents at the outset of the corporation’s existence while everyone is excited and happy to do so. You do not want to wait until there’s a conflict full of tension and resentment to start negotiating these documents. For more information on the best information to include in your corporation’s bylaws, contact your Florida estate planning attorney today and schedule a consultation.
Barry E. Haimo, Esq.