09 Mar Why Are Corporation Governing Documents Important?
By: Barry E. Haimo, Esq.
March 9, 2017
Why Are a Corporation’s Governing Documents Important? Part 1 – Bylaws
When you begin to set up a corporation – or any new business for that matter – you need to have a vision in place for where the business is going to go, how it will be run, and how any roadblocks will be handled. A strong vision is key to success.
Corporations, however, are typically not run by just one person. Your shareholders may hold a different vision than you for the business. The vision of your shareholders may also change over time, bringing the growth of the corporation to a standstill when conflicts arise. Additionally, your corporation may gain shareholders over the years that want to move away from the business’s original intentions.
In order to prevent discord among shareholders and ensure a unified vision and set of rules for the corporation throughout its existence, you should prepare the corporation’s bylaws and a shareholder’s agreement. This post discusses the importance of bylaws.
What Is Included in Bylaws?
Bylaws lay out the roles and responsibilities of shareholders and specific Board members (President, Vice President, Secretary, and so on). Bylaws also typically include:
- Purpose of the organization
- Different types of members, members’ selection process, procedure to discipline or remove members
- Board of Directors and how vacancies are filled
- Meetings, attendance rules, notice rules, how many Board members must be present for quorum
- Conflict of Interest Provision
- How amendments to bylaws can be added/the process for changing bylaws
- Indemnification of officers and directors
There are no limits as to what can be included in the bylaws. Essentially, you can write whatever you want.
We highly recommend considering any inside or outside conflicts that may affect your corporation in a few months, or even a few years. Think about what changes may come to the industry, and how your corporation can adapt while still staying true to your original intentions.
Keep a copy of your corporation’s bylaws at the main office or place of business. Often times your attorney will keep the original or at least a copy on file. Without them present at meetings, they are useless for conflict resolution. Every Officer and Board Member should have access to these bylaws. Recommend that each member review the bylaws at least once before taking their position.
Bylaws Are Not Required, but Are Highly Recommended
Technically, bylaws do not have to be written for an entity to be recognized as a corporation in Florida. But the Articles of Incorporation, which are required, just don’t give you the same peace of mind that bylaws provide. What is not contained within the Articles of Incorporation is governed by Florida statute unless you agree otherwise in the bylaws or shareholder’s agreement.
Bylaws are worth the time and work they take to create. Even if you need to hash some things out amongst shareholders now, it will save you an immense amount of stress, time, and money when issues arise after the corporation has been established.
Bylaws can include any information that you would like to ensure your vision is carried out. The Articles of Incorporation are extremely generic and don’t speak to your vision or intentions for your corporation. The more thorough the information that is included in the bylaws, the more direct your intentions and rules will be when your corporation faces a conflict in the future.
In the event that you get stuck writing your bylaws, or if you would like information on what information should be included and what conflicts should be addressed in these governing documents, contact a Florida business planning attorney.
Barry E. Haimo, Esq.