What are the bylaws and shareholders’ agreement (also known as corporate documents) and why is it so important to make sure they are kept up to date as part of the governance and compliance activities of a corporation?
What are the Bylaws and Shareholders’ Agreement in a C Corporation, S Corporation, PC or MSO
What are the bylaws and shareholders’ agreement in a C Corporation, S corporation, PC or Professional Corporation or Management Service Organization or MSO? Each of these corporate documents are designed to keep company operations and the relationships between those who own a stake in the corporation smooth and productive.
The corporate bylaws are a group of instructions that determine how a corporation is to be run, how voting and decision making will take place, the election of officers and selection of Board members as well as requirements for annual meetings and official records keeping.
One of the most important corporate documents is the shareholders’ agreement. The shareholders’ agreement should be designed to provide clarity on the roles and responsibilities of corporate shareholders, how a shareholder’s interest will be valued, as well as important succession planning for major events in the private lives of corporate shareholders such as a divorce, personal bankruptcy or even incapacity or death. Shareholder agreements can detail distribution of income and provide for a “buy-sell” agreement in the event a shareholder is unable to meet the established requirements or is unable to continue to participate in corporate operations.
Why Should The Bylaws and Shareholders’ Agreement Be Regularly Updated?
Why should the bylaws and shareholders’ agreement be regularly updated? Change is one of the constants of any corporation and these documents must be kept up to date to protect the corporate veil as well as the interests of those who hold an interest in the company.
If there is a discrepancy between shareholder agreements and corporate bylaws which will take priority? The shareholder agreements should clearly establish priority over corporate bylaws, which tend to be more generic in tone and construction. Both corporate documents should contain verbiage that establishes priority when the two are in conflict, as well as the process to consistently review and update both to ensure harmony with one another.
One of the goals of the bylaws and shareholders’ agreement is to reduce or eliminate disputes and litigation. Disputes between shareholders and corporate officers is quite harmful to any corporation. Shareholder disputes distract key players from focusing on the primary needs of the business and consume valuable corporate resources.
Contact Our Experienced San Diego and Southern California Corporate Attorneys
The experienced corporate attorneys at the Watkins Firm carefully craft corporate documents such as shareholder agreements and corporate bylaws to protect the interests of all parties, reduce or eliminate areas of vagueness or room for dispute while providing a clear road map for corporate success. We invite you to review our Podcast Episode 3 – Corporate Documents and the strong recommendations of our clients and contact us or call for a free consultation at 858-535-1511 for assistance in the creation of a corporate entity, compliance and governance and the development and maintenance of corporate documents.
