Drafting Bylaws - Four Things To Consider

Four points to consider when drafting these often crucially important, but tiresome, documents:

  • Distinguish among Shall/Will/Must. I often cite Bylaws as an example of how "shall" may sometimes mean "must" while other times may mean "may".  See When Shall/Will/Must/May We Meet Again?
  • Remember the Articles!  Occasionally, I come across bylaw provisions that are inconsistent with the articles of incorporation.  Under the California General Corporation Law, the bylaws may contain any provision "not in conflict" with the articles.  Cal. Corp. Code § 212(b).
  • Specify the correct number or range of authorized directors.  California has some very specific rules governing the number of directors.  See When Incorporating, Stay Off The “Highway of Sorrow” For There May Be No Turning Back.
  • Consider waiving the annual report requirement. Some matters may be waived only if included in the bylaws or articles.  For example, California' annual report requirement may be waived by a corporation with fewer than 100 holders of record of shares, if the waiver is included in the bylaws.  Cal. Corp. Code § 1501(a).  Even if incorporated in another state, a corporation may want to include a waiver of this requirement in its bylaws.  See California Requires Many Foreign Corporations To Send Annual Financial Statements To Shareholders.

Washington Crossing Delaware

I recently commented on Professor Stephen Bainbridge's post, "When an acquirer spots red flags: Should Microsoft's board beware?".  Yesterday, he responded by pointing out that many courts look to Delaware law precedents in the absence of controlling authority.  I agree.  Nonetheless, it should not be assumed that the courts will apply Delaware precedents in every case.  In some cases, for example, statutory provisions will differ.  Washington, for example, has adopted the Model Business Corporation Act while California, Delaware have not (See this 2013 map of MBCA adopting states prepared by Professor Bainbridge).

800px-Washington_crossing_the_Delaware,_Scranton_PA