In many of our posts we presume the reader has at least a passing familiarity with basic legal concepts, so periodically we like to take time to explain some of our legalese. This post introduces the two documents that govern the operations of most corporations: the Charter and the Bylaws.
The Charter is the document filed with the Secretary of State in the corporation’s state of organization to give life to the corporation. Charters are publicly available from the Secretary of State, and often available in PDF from the Secretary of State’s website. The Charter goes by different names in different states (Articles of Organization in Massachusetts, Certificate of Incorporation in Delaware, etc.) and the information required in the Charter varies somewhat from state to state, but typically a Charter must include, at a minimum, basic information about the corporation’s line of business, its place of business, its equity structure, its founders and its initial officers and directors. Often the Charter will also include optional provisions concerning matters, such as the extent of any indemnification of the corporation’s officers and directors, and some corporate actions or activities may only be permitted if explicitly authorized in the Charter. For example, shareholders of a Massachusetts corporation may take action by written consent, but all such consents must be unanimous unless the Charter permits action by less-than-unanimous consent (by contrast, Delaware permits shareholder action by less-than-unanimous consent unless prohibited by the Charter). Amendments to the Charter usually require approval of the corporation’s Board of Directors and its shareholders.
Bylaws are the operating manual of a corporation. Bylaws typically describe in detail how corporate decisions must be taken, including: how directors are elected and officers are appointed; how authority is divided among the corporation’s shareholders, directors and officers; and what procedures must be followed for actions requiring approval of the shareholders or Board of Director. Bylaws often also describe procedures for issuing stock, the form and content of required corporate recordkeeping, and procedures for any indemnification of officers and directors. Unlike the Charter, Bylaws of private companies are typically not publicly available (Bylaws of publicly traded companies must be filed with, and are available through, the Securities and Exchange Commission). Shareholders always have the authority to amend the Bylaws, but some states also permit the Board of Directors to amend the Bylaws without shareholder approval, provided that the shareholders are promptly notified of the amendment and do not vote to overturn it within a certain period of time.
Tags: by-laws, bylaws, Charter, Formation, founders, Startup
Tags: by-laws, bylaws, Charter, Formation, founders, Startup