Though corporate bylaws are required in most states, our purpose today is to stress the importance of updating them regularly and what needs to be included in them. Because our firm is based out of Florida, we need to highlight that the Florida Business Corporation Act requires corporations in this state to have bylaws. Even if you live in a state where they are not required, you should have them. They are private and are the foundation of your corporation. They need to give an accurate representation of how your corporation is structured and what your purpose is.
To appreciate their importance, you need to have a command over what they are and what they accomplish. Well-written bylaws provide a detailed description and include the following:
- How your corporation is structured
- How it is run
- The size of the board
- An overview of how your board and shareholders’ meetings are conducted
- The responsibilities, rights, and obligations of each of your board members
- A guide for resolving disputes
Your Board of Directors
The board of directors is an executive committee that oversees and guides the organization. Because the directors are not employees but report to the shareholders, your bylaws are critical. Their responsibilities and scope of power are primarily defined by corporate law and your bylaws. Having an attorney ensures that your bylaws are legally binding and provide the structure you need. For example, you need to know how big the board will be, how long their terms are, and your procedures for bringing in new directors or removing existing ones.
Your board of directors will have significant influence over your company, including choosing the officers who will oversee daily operations and execution (e.g., the president of the company). Although your board of directors will choose the directors, your bylaws will detail which roles need to be filled and the responsibilities of the person chosen to fill that position. (It is important to note that shareholders can be your directors and officers. The details regarding how many shares will be issued, how they are transferred, etc., are included in your articles of incorporation as opposed to the bylaws.)
The Importance of Updating Them
Outdated bylaws can expose you to liability and litigation. Even if you drafted them last year and don’t wish to change them, there is always the possibility that new laws have passed since you created them. Your bylaws did to be in line with the state and federal laws that exist outside your organization. Updating them annually is critical for maintaining legal compliance, but it ensures your board of directors is aware of its duties and responsibilities.
It is important to remember that your bylaws are one component of building a foundation for your business. When stock corporations are formed, it is paramount that you have a shareholding operating agreement drafted by an experienced and reliable business law attorney. When prepared correctly, they can limit your potential for lawsuits. For more information about how we support businesses like yours, contact Trembly Law Firm to schedule a consultation.