Sunday, February 26, 2012

Bylaws USA

Bylaws: Agree to Agree!

If you've ever formed any business or belonged to any organization, even something as simple as a Homeowner's Association, then you are familiar with bylaws. They are one of the documents that a business creates when it becomes a corporation, and they become sort of the skeleton of the corporations body. There are other documents, certainly, like business plans, which set out the goals of the company. There are Articles of Incorporation, which permit a business to operate legally in a specific state. However, it's the bylaws that officers are supposed to uphold throughout the life of the corporation.

Following the Rules

Just think of the confusion that would result if a corporation had no basic operating procedures from which to function. That's what bylaws do, and they are in effect until they are changed through a voting process defined in the bylaws. Even then, the changed, or “amended” bylaws remain in place and underlie the uniformity of a corporation's procedures as long as the corporation exists. Bylaws are not usually filed with the state like articles of incorporation, but just to show you how much importance is placed on them, violation of bylaws can result in civil suits by shareholders or the other officers of the corporation. Bylaws essentially lay out the mission and act as a rule book for corporate operation and officer behavior. They name the company, spell out where it is located, what officers will be elected for the firms, the manner in which they are elected, ownership percentages, how shareholders will participate, the number of shares of company stock that will be issued, if any, and the procedure that will be used for issuing and selling that stock. Possibly the most important items in a set of bylaws are the rules for how decisions affecting the corporation are to be made. Everything from setting dates for annual meetings and spelling out the procedures for shareholder meetings, elections and proxies are detailed. Business that has to be conducted at meetings is detailed, as well as voting procedures.

Let's be clear that the bylaws are not so detailed as to spell out or govern exactly how day-to-day decisions will be made for the business. However, they do document the agreement that the owners have come to as to how the corporation operates. Every officer has an obligation to know the bylaws and to conduct themselves according to the policies contained in them. New, incoming officers are usually required to acknowledge that they have received, read, and understand the bylaws. There is usually an explicit acknowledgement that the new officer will comply with the bylaws, even though they had no hand in drafting them. This is simply the way the corporation will work.Keep It Simple and Flexible

Since bylaws are so important and are usually the first, and controlling instrument of corporate governance that any business adopts, they are quite naturally complex for corporations that have a large number of shareholders, officers, and boards of directors. However, a small business is usually better off with simpler bylaws that only include the sections having to do with establishing company name, location, officers and stockholders, with sections that cover annual meetings, record keeping and any practice standards that the company wishes to adopt. Because bylaws have to be integral to the way officers think about their company, simplicity is paramount. The more minute details should be left to some type of policies and procedures manual that can be more easily adopted and changed. In other words, the bylaws must be flexible enough in their structure to keep from strangling the corporation as it operates through changes in size and profitability. And, the bylaws need to provide stable and predictable procedures for changes in leadership and even, possibly, ownership. Although bylaws are written with some glimpse of future changes, most bylaws are short on details, relying instead upon a very clearly outlined amendment process to deal with any eventuality that might come along during the life of the corporation.

One thing we do know about bylaws, and one thing we depend upon, either as members of the company, or as shareholders: We expect the officers and even the employees to abide by the bylaws. Anyone who goes around the bylaws or who simply works against them, will be reprimanded at best, and asked to leave upon repetitive abrogation or breach of the bylaws. As individuals within the corporation, or as shareholders, we expect nothing less. Anything else is anarchy. Worse, if the bylaws are not followed, then they cease to have any power at all. In a civil suite, a corporation might lose if they were shown to have failed in enforcing the tenants of the bylaws.

Bylaws USA

By this point, you may be wondering just what this blog entry is all about. I'll give it to you straight. The Declaration of Independence is like the Articles of Incorporation for the United States. The Constitution is like the country's bylaws. You and I didn't get a say in how the bylaws were written, but there's a very effective amendment process, if we happen to want to change them. Many people don't want them changed, and they have set up themselves, their families, and their businesses based on those “bylaws” staying structurally sound. It's so important that the bylaws be enforced, that we make our “Officers” swear to uphold those bylaws, but we give them the leeway to set policies and procedures to take care of daily business without being hamstrung by millions and millions of words of directions. You would almost think that a set of bylaws strong enough to control a $15 trillion dollar “business” would be quite complex. However, in a few thousand words, our founders managed to create a document with enough directions, yet enough flexibility, to handle changes in leadership, elections, legislation, laws, even changes in ownership, if we chose to do that.

But, my guess is that most people don't want a change in ownership....yet. And, even if that is the completely upend the Constitution and change it utterly, the one unbreakable rule that must be observed if chaos is to be avoided, is voting. The people get to decide. The people get to vote. The people are the sovereign power, and only they get to decide if the Constitution will be changed. And, that voting comes through a simply detailed amendment process. Anything else should be ruled unconstitutional....a breach of the bylaws!

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