Are Bylaws Required?

Is a corporation required to have bylaws?  I expect that many attorneys considers anyone who thinks bylaws are not required to be benighted at best. 

The answer will, of course, depend on the law of the state of incorporation.  If that state is Nevada, there is no explicit requirement that the incorporators, stockholders or directors adopt bylaws.  See Bishop & Zucker on Nevada Corporations and Limited Liability Companies § 4.10 (yes, I’m a co-author of this book).  Insofar as corporations formed under the California General Corporation Law are concerned, Professor Marsh’s treatise flatly states “there is no requirement that a corporation in fact have bylaws”.  Marsh’s California Corporation Law § 5.17[A] (I revised one chapter of this book, but not this one).  Compare Section 2.06(a) of the Model Business Corporation Act which provides “The incorporators or board of directors of a corporation shall adopt initial bylaws of the corporation” (I had nothing to do with the MBCA).  

Even if there is no explicit statutory requirement, it may be that both states implicitly require corporations to adopt bylaws by mandating that corporations keep copies of bylaws at their registered or principal office.  NRS 78.105(1)(b) and Cal. Corp. Code § 213.  Also, it can be argued that California requires the adoption of bylaws when the articles of incorporation do not specify the number of directors.  In that case, a bylaw is necessary because there is no way to determine the proper number of directors.  Cal. Corp. Code § 212(a).

Note that I’ve framed the question as whether bylaws are required.  Whether bylaws are desirable is an entirely different question.  Marsh’s treatise points out that the current California General Corporation Law was drafted “to cover all of the subjects which normally would be dealt with in the bylaws”.  Certainly bylaws are necessary to alter these default provisions (to the extent that they can be altered by the bylaws).   If, however, no change is intended, what purpose is served by regurgitating or restating the GCL in the bylaws?  Some take the position that the bylaws provide a useful resource to management who may not bother to read the statutes.   However, this assumes that bylaws will be kept up to date – an assumption that may not be correct.  One way to address this problem is to adopt “short form” bylaws that include only basic provisions and that do not try to restate the GCL.

One of the best reasons to adopt bylaws is to bolster the corporation’s position that it has observed appropriate corporate formalities – a fact that may be important to defeating an alter ego claim.

Resume Lies

Yesterday, Broc Romanek discussed in this post a resume problem that recently made the news.  Here’s a legal alert that my partner, Jason Weiss, and I wrote a few years back on the same topic.

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N.B. – As a reminder, this blog is not legal advice.  If you have questions regarding topics that I cover, you should seek independent legal advice.  I am not your lawyer.

 

Published In: Business Organization Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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