Contents of Bylaws – in More Detail
Now, let’s take a look at the sections of the bylaws in more detail:
- Offices
- Will generally state where offices are located or can be located, such as the corporation’s headquarters and/or other facilities
- Board of Directors
- State who the directors are or how they will be elected
- State the number of directors
- there must always be at least 3 directors in a corporation, unless there are less than 3 total shareholders in the corporation, in which the directors must equal the number of shareholders (e.g. if there are only 2 shareholders in a corporation then there must be 2 directors)
- Define how vacancies are filled
- Determine compensation, if any
- Explain how conflicts of interest will be handled
- Conflicts of Interest
- The term conflict of interest is a broad term and there can be much said about this term
- In general, however, a conflict of interest arises when a director may benefit from a corporate decision (e.g. corporation wants to buy property owned by a director)
- There must be specific provisions to determine how to handle different conflicts of interest
- Directors’ Meetings
- Place of meetings
- When and how to hold regular meetings
- When, how, and where to hold special meetings
- Special meetings
- Special meetings are held for a particular purpose, such as to buy another business
- When, how, and who can give notice of special meetings
- Quorums for meetings, i.e. how many directors must be present to make business decisions at meetings
- How to adjourn a meeting, i.e. end the official business of the meeting
- Shareholders
- Define the shareholders
- Set a record date for which persons are considered to be shareholders
- Shareholders’ Meetings
- Sets all the parameters for how shareholder meetings shall be conducted, including (similar to directors’ meetings):
- Place of meetings
- Time of meetings
- How to call special meetings, and define what special meetings are, and explain who can call special meetings (e.g. shareholders with 20% or more ownership in the company)
- How to give notice of shareholders’ meeting to the shareholders, including when notices must be given and in what formats
- Define quorums for the shareholders’ meetings, i.e. the minimum number of shareholders required to have a meeting (e.g. a simply majority = 50% + 1)
- How to vote for directors
- How proxies work for shareholders, i.e. how others can vote for a particular shareholder if that shareholder cannot make it to the meeting
- Officers
- Set the number and titles of the officers
- Officers can include (but are not limited to):
- President
- Chief executive officer (CEO)
- Chief financial officer (CFO)
- Treasurer
- Secretary
- Vice Presidents, e.g. VP of Public Affairs
- Explain the duties of each officer’s position
- Explain how officers are elected (usually by the board of directors on an annual basis)
- Explain how vacancies will be filled
- Corporate Records
- How the minutes of the corporation’s meetings will be maintained – the minutes refer to the documentation of the meetings
- How the share register will be maintained – the share register is simply a log that keeps track of who owns what shares
- How, when, and why shareholders can inspect the corporation’s official records and documents
- When financial statements and annual reports may be issued to shareholders – in order to show the shareholders how the corporation is doing financially
- Determine the fiscal year of the corporation – a fiscal year can differ from the calendar year
- Transfer and Issuance of Shares
- Explain if there will be different classes and/or series of shares
- Explain how shares will be paid for (only cash, or also by services, property, etc.)
- Whether the corporation will issue share certificates, i.e. copies of ownership in the corporation
- Explain any types of restrictions on transfer of the shares (e.g. shareholders cannot transfer shares to third parties without first offering the shares to the current shareholders – this is called the right of first refusal)
- Define how to properly transfer, i.e. sell, assign, or otherwise convey shares
- Indemnification
- How, when, and why the corporation will indemnify (i.e. protect) directors, officers, and others if a third-party files a lawsuit against them
- Explain how the corporation will pay for indemnification of individuals
- Miscellaneous Provisions
- Derivative lawsuits
- Explain how shareholders can file derivative lawsuits against the corporation – a derivative lawsuit is one which a shareholder files against the corporation for a particular act or omission of the corporation
- Insurance
- Explain if the corporation will insure certain individuals like top-level officers, directors, and/or employees
- A corporation might purchase insurance for an individual in case that individual leaves the corporation – which could be very costly and time consuming to find a replacement
- Emergencies
- Explain how emergencies might be handled, as with fires, floods, etc.
- Amendments
- How the bylaws can be amended based on certain voting procedures
- How new bylaws may be passed by the corporation
- *Amendments generally require a supermajority vote in order to be passed (e.g. 66% or more) and generally cannot simply be voted on by the board of directors
That may seem like a lot to consider, especially if you’ve never dealt with these types of issues before. So, you may want to read this article again to better internalize the information this article has to offer.
Finally, we’ll finish this article with an overview of what we’ve discussed.