Why Amend before 2007: The Corporate By-Laws

In my most recent column I addressed several important reasons why you may want to consider amending your company's Articles of Incorporation. Some of those and many more reasons may exist to take the same action regarding your Corporate By-Laws.

As noted in that column, changes in corporate name, registered address, the nature of your business enterprise and corporate stock offerings can justify amendment to Articles of Incorporation before 2007. In addition, those changes may require changes to the internal corporate by-laws. There are matters that may or may not affect the articles of incorporation, including stockholder meetings, specific issues associated with the board of directors, officers and other miscellaneous items, which must be addressed internally despite no changes to the articles of Incorporation.

Stockholder Meetings

When adding more members to a board of directors, this often reflects a change in ownership. It can also mean changes in matters related to stockholder meetings, which can become increasingly more important when converting from a one-person corporation to one involving others.

When a person forms a corporation it is not uncommon to notice the documents are put away somewhere in a drawer and never looked at again until a lawyer, accountant, partner or potential investor raises questions. Here are some simple examples you may not have thought about:

When annual meetings are held – you may have to accommodate a new partner.

Election of directors – have you committed to written ballot only, or could it be that new partners/investors residing elsewhere may require some accommodation of ballot media or timing for submittal of the ballot?

Special meetings of the board – how many board members are now required to request and hold a special meeting, and what are the limits on topics of discussion in those special meetings?

Meeting quorum – what constitutes a board meeting quorum, a majority of shares of stock held or a majority of board members? Is there any change in board membership that warrants reconsidering this issue?

Notice of meetings – how many days' notice are required to inform all board members of a meeting? Again, has there been a change of board members that can affect this, such as distance from the designated location for those meetings?

Consent in lieu of meetings – this is a particularly important section of the by-laws. You do want to review and consider the content of this section, especially when incorporating new members to the board of directors. This section directly relates to level of authority corporate officers retain outside the meetings and decisions of the board.
Directors

When there is a change of membership on the board of directors, sections of the by-laws associated specifically to directors again need close attention:

Terms of office – most likely this section will not change, but review it to satisfy your need to be informed about all content of your company's by-laws.

Regular meetings – will you require that directors be informed of regular meetings, or will you simply set the schedule at the beginning of the year and distributed at the annual meeting? (Personally, if the by-laws indicate I do not have to be notified of regular meetings, I would be a reluctant participant.)

Special meetings – how many days' notice should the chairman give for special meetings? And what are the forms of communication the chairperson can or is required to use to inform the board of special meetings?

Quorum – what constitutes a quorum for the board to conduct business, the number of directors or percent of stock held? This is particularly important in privately held companies.

Meeting locale – are all board meetings confined to one location, or can they also be held at other locations?

Conference calling – can board members participate via conference calling to the meeting location? If so, what is the limit on the number of board members who can participate via telephone?

Removal – can a board member be removed by quorum of numbers of board members, or does shares of stock owned constitute a quorum? Again, this is particularly important in a privately held company.
Officers

Corporate by-laws tend to be a pretty standard set of rules and regulations that govern the operations of the company. There are deviations from one state to the next, but there is leeway in those by-laws that can expand or restrict the actions individual officers can take with or without the approval of the board of directors, including salaries, terms of office, the duties of the chairman, president, secretary and chief financial officer. When the corporation enters into new, internal relationships these matters warrant review.

Other By-Laws

Vacancies, resignations, distribution of dividends, share transfers, designation of the company's fiscal (tax) year, notices and waiver of notices of proposed changes to the by-laws, disallowed compensation and qualifying reimbursement items are all very important issues that should never be ignored.

Conclusions

If you have never given any serious attention to the details of your company's by-laws now is the time to begin. If you are about to enter the new year with new investors, new board members or other new relationships that can impact the by-laws it is time to begin your homework. This may or may not require input from your lawyers and accountants.

And this same set of circumstances holds true for anybody who is about to enter into a formal business relationship with another corporation that involves ownership and authority. For example, if you are an investor who is about to become part owner in a privately held company, complete with shares of stock, have your lawyer and accountant examine that company's articles of incorporation and by-laws. It is in your best interest.

If you have a question about the articles of incorporation and/or the by-laws go to MyCorporation.com's Live Help for assistance. Additional contact information can be accessed at Contact Us. If you are new to this process, or never gave much attention to the content of these documents then review the FAQ's of incorporation. Learn the difference between a corporate officer and corporate director, and between articles of incorporation and by-laws. For information on amending your Articles of Incorporation, go to MyCorporation.com's Articles of Amendment page.