Why Are Corporation Governing Documents Important?

by | Feb 12, 2021

Why Are a Corporation’s Governing Documents Important? Part 1: Bylaws

By: Barry E. Haimo, Esq.
February 12, 2021

When you begin to set up a corporation – or any new business for that matter – you need to have a vision in place. It should cover where the business is going to go, how it will be run, and how any roadblocks will be handled.

Simply put, a strong vision is key to success.

Corporations, however, are typically not run by just one person. Which means your shareholders may hold a different vision for the business than you. To make matters even more complicated, the vision of your shareholders may change over time. Or you might gain new shareholders over the years that want to move away from the business’s original intentions.

When conflicts due to conflicting visions arise, it can bring growth to a standstill.

To put it mildly, you do not want this. But how do you prevent discord among shareholders?

The best way is to codify a clear set of rules and a unified vision in the corporation’s bylaws and shareholder’s agreement. This way, everyone must adhere to these guidelines throughout the corporation’s existence.

Below, we’re going to detail the importance of bylaws and how they work.

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 and the process for changing bylaws
  • Indemnification of officers and directors

There are no limits as to what can be included in bylaws. Essentially, you can write whatever you want.

We highly recommend considering any inside or outside conflicts that may affect your corporation. For example, think about what changes may come to your 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, and make sure they’re readily available for meetings. Without them at meetings, they are useless for conflict resolution. Every Officer and Board Member should have access to the bylaws, and you should recommend that each member review the bylaws at least once before taking their position.  

Additionally, it is common to have your attorney keep the original (or at least a copy) on file.

No, You Don’t Have to Have Bylaws… But You Really Should

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.

Why? Because wat is not contained within the Articles of Incorporation will be governed by Florida statute –unless you agree otherwise in the bylaws or shareholder’s agreement.

Bottom line? Bylaws are worth the time and work they take to create.

Even if you need to hash some things out amongst shareholders now, having bylaws will save you an immense amount of stress, time, and money when issues arise.

Remember, bylaws can include any information that you would like to ensure your vision is carried out. The Articles of Incorporation are extremely generic. They 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.

Getting stuck writing your bylaws? Want more information on what information should be included and what conflicts should be addressed in these governing documents? Contact a Florida business planning attorney.

Originally published 3/9/2017. Updated 2/12/2021.

Author:
Barry E. Haimo, Esq.
Haimo Law
Strategic Planning With Purpose®
Email: barry@haimolaw.com

YouTube: http://www.youtube.com/user/haimolawtv

 

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