Educating New Clients About Their Corporate Bylaws

January 21, 2016

4541As with many seemingly mundane and routine activities associated with representing corporate clients, lawyers often ignore the opportunities that bylaw preparation provide for education and issue spotting.  The scope and content of the bylaws will vary depending upon the circumstances, particularly the size of the corporation and the peculiar requirements of applicable statutes. However, bylaws typically cover the following matters, all of which are discussed in detail in the Business Transactions Solution chapter on Bylaws (§§ 32:1 et seq.):

  • Shareholders’ meetings;
  • Election of directors;
  • Directors’ meetings and actions;
  • Number of directors;
  • Officers;
  • The principal office of the corporation and any other business offices;
  • Notices relating to corporate matters, including meetings;
  • Share certificates and share transfer restrictions;
  • Restrictions on dividend payments;
  • The creation and use of reserve accounts;
  • The procedures for opening corporate bank accounts and for borrowing money;
  • The fiscal year of the corporation;
  • The form and use of the corporate seal;
  • Corporate records; and
  • Procedures for amending the bylaws or waiving the effect of a bylaw.

Gutterman WLEC bannerWhen discussing the contents of the bylaws with clients, the attorney should use client communication templates that ensure that clients are made aware of key issues that should be considered when reviewing and approving a proposed form of bylaws. Specialty Form § 32:135 in Business Transactions Solution is a temple for a communication that can be sent to a client along with the proposed form of initial bylaws for the corporation. The contents of the communication should be customized to the specific concerns of the client; however, it is typical for the attorney to focus the attention of the client on the provisions relating to the size and composition of the board of directors; the duties and responsibilities of the named officers of the corporation; the procedures for indemnifying directors, officers and other agents of the corporation; the requirements for amending the bylaws; and the proposed restrictions on the ability of stockholders to transfer their shares.   The attorney should explain the procedures for adopting the bylaws and make sure that the client distributes the bylaws to all directors and officers.  The attorney should also admonish the client about the need for a regular review of the bylaws, no less than annually, to ensure that all relevant statutory changes have been incorporated and that the provisions remain suitable for the anticipated operations of the corporation.

Titles by Alan Gutterman