As corporations throughout the years have found out the hard way, changes to a company’s bylaws and policies can be met with reactions ranging from surprise to anger or disappointment. What can be even more troublesome is if a company does not have bylaws or policies in place. Many businesses that are just starting out are understandably in flux when it comes to “business as usual.” Furthermore, many new company leaders may believe that there is little point to spending valuable time and resources away from their primary goal (to become successful) in order to draft and implement rules to govern how the business will be managed. This is especially true with small businesses who may only have a handful of loyal believers helping them build from the ground up. Despite their seemingly mundane nature, however, establishing rules and bylaws that will be used to govern employees, or board members, is an important step to ensuring the company’s lasting success. Part of this success will come from the added protection these documents provide from government investigators or employee led lawsuits.
Under California law, companies are not specifically required to file a copy of their bylaws with the state. Some argue that a corporation does not need bylaws at all, so long as the business has another document (i.e. articles of incorporation) that outlines the total number of board members the company will have sitting on its Board of Directors. This comes from a provision of the law that states that “the bylaws shall set forth…the number of directors of the corporation…” This portion of the law is preceded by a statement that “bylaws may be adopted, amended or repealed” by the Board, unless the articles of incorporation state otherwise. It is best to consult an experienced attorney when creating a corporation so that this question can be discussed, as well as what exactly needs to go in them if they are drafted. In some situations, the failure to have sufficient guiding documents for a corporation can land a company in serious legal trouble.
A corporation’s governing documents must meet a list of requirements in order to pass under California law. These items should not merely be seen as a checklist, however, as they will be cited to in the event a lawsuit or investigation arises down the road. The documents should outline the “governing principles” that the company will follow when conducting business and may be looked at by state and federal regulators to ensure compliance with all applicable national (and international) laws. Such principles include:
These must be discussed in such a way that makes it clear to all board members and corporate officers what will be expected of them and what will be prohibited. Vague concepts and unclear direction in the corporation’s guiding documents can lead to liability on the part of the company if it is found that poor behavior was encouraged or knowingly overlooked.
Starting a company can be a stressful, but exciting time in anyone’s life. It takes perseverance, patience, and a lot of hard work to build a successful company from the ground up. Do not let all that work lead to ruin because of poor drafting of your company’s most critical documents. Contact the law office of Garcia & Gurney today and speak to an experienced team who knows the law and who can help you and your company stay on a path to success.
"Melinda Garcia came very highly recommended by two colleagues who raved about her expertise and assertiveness. She and her team are extremely responsive and help us navigate the legal challenges of our consulting business. We're thrilled to have Melinda on our side!"
"Melinda Garcia was wonderful to work with. She is an outstanding listener and has a great memory for details and personal information.... which makes one feel very comfortable and welcome. I would highly recommend her to anyone not only because of her outstanding abilities but because of the compassion she eludes in dealing with an individual's issues/concerns."
"Highly recommend! "
"Melinda Garcia provided me excellent advice in resolving an employment agreement related to an acquisition of the company I worked for. She is very knowledgeable, asked me what I wanted to achieve with her services, provided excellent service to achieve those goals, and was very cognizant of fees. I recommend her for employment related services."
"Melinda Garcia provided excellent guidance with an employment/compensation case. Her knowledge of employment law, and strong negotiation skills, brought the case to a successful conclusion."
"Melinda Garcia has done an excellent job assisting us as we established our small business. From incorporation to contract negotiations, Melinda Garcia and her staff were outstanding"