When are organizational meetings held?
The organizational meetings are held after the Articles of Incorporation are filed in order to complete the organization of the corporation. If initial directors were not named in the articles, the incorporators will hold an incorporators’ meeting to elect the directors. In some states, they also adopt the bylaws. The usual practice is to hold a “paper meeting” or sign a statement of the sole incorporator setting forth the action taken. The minutes or statement is filed in the corporation’s minutes book.
The directors complete the organization by holding what is usually called “the first meeting of directors”. At their organizational meeting, the directors will adopt the bylaws (unless they have been adopted by the incorporators), elect officers, accept subscriptions for and issue stock, and generally take all other actions required to complete the organization.
Are corporate bylaws required?
Most states require corporations to have bylaws. The corporation statutes also require corporations to keep a copy and to provide it to any shareholder requesting an inspection.
Bylaws vs. Articles of Incorporation
All corporations are governed by three basic sources – (1) the corporation statute, (2) the articles of incorporation, and (3) the bylaws. (Certain corporations may have additional sources such as shareholder agreements.)
Although the bylaws and the articles of incorporation are both critical components of corporate governance, they serve different functions.
Regarding the articles of incorporation:
- The articles of incorporation create the corporation. They are a public document, filed with the state’s corporation filing office, such as the Secretary of State.
- Every corporation statute has certain required provisions that must be included in the articles.These are mainly fundamental provisions that the public needs to be aware of such as the corporation’s name, purpose, and name and address of registered agent.
- There are also optional provisions that can be included.In some cases a governing provision can only be effective if it is included in the articles.An example is a provision restricting the personal liability of directors in certain circumstances.
- In general, the articles of incorporation can only be amended if the shareholders’ vote for the amendment.The corporation laws provide for the procedure, which generally requires the board of directors to adopt a resolution, submit it to the shareholders, with the shareholders approving at a meeting or by consent.
For the bylaws:
- The bylaws are a private document. Bylaws are not filed with the state.
- Bylaws deal with the way the corporation functions on a day-to-day basis.
- The corporation statutes generally do not require a corporation to set forth certain provisions in the bylaws.
- It is typically simpler to amend bylaws than it is to amend articles of incorporation. The bylaws can set forth the procedure for amending the bylaws
- If there is a conflict between the bylaws and the articles of incorporation, the articles rule.
Statutory restrictions on corporate bylaws
While the board of directors and/or shareholders have broad discretion in deciding what the bylaws should provide, there are two common statutory restrictions — a bylaw provision cannot conflict with a provision in the articles of incorporation, and it cannot violate the law.
Two judicial decisions act as reminders of those statutory limitations.
- In one decision, a board of directors wanted to amend the corporation’s bylaws to reduce the quorum for shareholders’ meetings to twenty percent of shares. The court held that it couldn’t because the corporation statute requires that any change to the statutory default rule (which is that a majority of shares is required for a quorum) has to be set forth in the articles of incorporation – and not the bylaws.
- In the other decision, an incorporated association’s board of directors ordered some members to pay the fee charged by a law firm hired by the corporation to investigate the signatures on a petition presented by the members. The board relied on a bylaw allowing it to make special assessments against members. But the court ruled against the corporation because the bylaw conflicted with the Declaration of Incorporation which provided that no member could be held personally liable for corporate debts.
These cases are a useful reminder for shareholders and directors of new or existing corporations that there are some limits on what they can provide in their corporation’s bylaws.
Related content
The Corporation Handbook: This comprehensive guide provides an overview of corporation-related topics, including how corporations are taxed, how to maintain good standing, and more.
For more information, contact CT Corporation.
