Although California does not require a company to have bylaws, below are six reasons why every business owner should invest in a strategically thought out set of bylaws for their company:
1. The Bylaws are the Company’s Legal Backbone.
A company’s bylaws provide the framework for how it operates, including rules for the owners’ relationship.
2. What if Your Company Does Not Have Bylaws?
If your company does not have bylaws in place, the laws of California will control how the company is run. The owners should determine how it would like to have the company operate than to rely on the state’s statutes.
It is similar to an individual not having a will or trust. If they die, the state’s statutes determine how the individual’s assets are distributed. Instead, the individual should thoughtfully think through how they would like their assets distributed and to set up the legal mechanism to enforce their plan.
Similarly, it is much better for business owners to strategically think through how they would like their company to operate than to rely on the state’s statutes, which might not always be the best fit for the company.
3. Bylaws Provide Owners With Peace of Mind.
Every company eventually runs into challenges. It is better to consider some of the potential turning points in your company and provide in the bylaws how you would like for the outcomes of these situations to be determined than to wait to make these tough decisions when interested parties and passions may create the perfect storm for litigation.
For example, what will happen if there is a legal dispute between the owners? Do you want the company to be tied up in the expense and distraction of litigation or would you prefer arbitration? What happens if one of the owners …Read More