A Texas corporation should have corporate bylaws to operate efficiently. This set of documents help to prevent disputes and provide guidance on the running of the business.
Understanding corporate bylaws
Bylaws are a set of rules, regulations and procedures that govern the internal management of a corporation. The board of directors is responsible for preparing and maintaining these bylaws.
What they entail
The first role of corporate bylaws, according to business law, is to define the rights and responsibilities of members, officers, directors, shareholders and other individuals associated with the corporation. Corporate bylaws will also include information on how to run meetings; when or how to establish a quorum; voting procedures; and rules for resolving internal disputes.
In addition, members can add “special” provisions to corporate bylaws, such as requirements for insurance coverage or restrictions on the sale of shares. As long as these special provisions are legal and consistent with the Texas Business Organizations Code, they can be upheld.
Reasons why companies need them
Corporate bylaws serve as a reference point when it comes to making sure that everything is being done legally and ethically. They also provide a guide for decision-making so everyone involved knows what their rights and responsibilities are within the context of the corporation. Moreover, corporate bylaws help avoid conflicts between shareholders, directors, and officers, since they clearly define who has authority over certain matters.
When a violation of corporate bylaws occurs
Corporate bylaws are enforceable. Some consequences of violating them include:
• Removal from office
• Internal liability for members of the corporation
• External liabilities to third parties that the violation affected
• Criminal liability, such as the imposition of fines and jail time
Corporate bylaws play an important role in the success of a corporation, so it is essential that they are set up correctly. Company management should periodically review them to ensure they stay relevant to changing business needs.
