Corporate Bylaws and Shareholders’ Agreements

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When you form corporation, it is a good practice to have bylaws or a shareholders’ agreement. Even if you are on your own, it shows that you are respecting the corporate formalities, it shows professionalism and helps prevent creditors from trying to pierce the corporate veil and get your personal assets. If there is more than one owner, an agreement is even more important to establish the rules of the road at the outset. Get your customized bylaws today.

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Corporate bylaws set the ground rules for your corporation will operate. It is similar to a partnership agreement for partnerships or an LLC operating agreement for an LLC.
One of the primary reason to form a corporation is to shield the owners from individual liability. To keep that protection, you have to follow the formalities to demonstrate that you really are operating as a corporation and having proper bylaws is one way to demonstrate that. If you have more than one shareholder in the corporation, it is also imperative to set forth the ground rules for how you will operate the corporation at the beginning before any disagreements arise.
There is no set rule dictating what must or what cannot be in your corporate bylaws. Generally speaking, the corporate bylaws will cover:
  • Initial capital contributions of the shareholders
  • Who gets to vote, how they vote and what percentage of votes are needed to do certain actions
  • Restrictions on transfer of a shareholder’s interests or the addition of a new shareholder
  • How profits will be distributed
  • Designation of officers or directors
Without bylaws, you could lose the personal liability shield that comes with the formation of your corporation. Many states have default rules that will govern your corporation if there are no bylaws, but the lack of clear rules at the outset is one of the primary reasons many disputes between owners end up at the courthouse. As lawyers like to say, you can pay a little to establish the rules now or pay a lot more to have the rules established in court.

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