The Importance of Bylaws
If you have started a corporation in California by filing the Articles of Incorporation with the California Secretary of State, you have only completed the first step in forming a California corporation. Cal. Corporations Code section 211 requires each California corporation to adopt corporate bylaws. Most corporations have adopted form bylaws which all seem to say the same thing, and everyone seems to believe that they are necessary but not relevant. THEY ARE WRONG! The bylaws of a Corporation set forth the ground rules for meetings, inspection rights, board of director indemnification, number of directors and so forth and so on.
Some examples of relevant provisions of the bylaws are as follows:
Annual Meeting of Shareholders
All corporations are required, pursuant to Cal. Corp Code Section 600, to annually have a meeting of the shareholders. To prevent confusion regarding this annual meeting, the bylaws should state the date for the annual meeting, i.e. March 10 of each year.
Number of Directors
A California corporation must annually elect directors at the annual meeting of the shareholders (see Cal. Corp. Code 301) The bylaws should include the number of directors to be elected by the shareholders, and the number of directors must be – in certain circumstances – at least three. (See Cal. Corp. Code section 212)
Waiver of Annual Statement
All California corporations, whether large or small, are required to send an annual statement to the shareholders, which contains the balance sheet, income statement, and a statement of cash flows. For corporations with fewer than 100 shareholders, this requirement can generally be waived, but only if stated in the bylaws. If all the shareholders of the corporation are active in the business, it may be in the corporations and individuals best interest to waive this requirement due to expenses and receipt through other means. However, if one or more shareholders are not active in the business, they will want to see on an annual basis how the corporation is running. If this provision is waived in the bylaws, they will not be entitled to demand this information.
If you are a corporate shareholder, director or officer, review your bylaws! If you are worried about their content or have questions, contact us to provide a thorough review of your corporate minute book.
