What are bylaws?
February 15, 2009
The bylaws of a corporation set forth various procedures affecting the governance of the corporation. Delaware law allows a corporation’s bylaws to contain any provision relating to the business of the corporation, the conduct of its affairs, or the rights or powers of its stockholders, directors, officers or employees, so long as the provision is lawful and consistent with the certificate of incorporation.
Generally, the bylaws set forth the responsibilities of the directors and officers, the number or range of numbers of directors, the manner of calling meetings of the stockholders and directors (including the required notice), the maintenance of corporate records, the issuance of reports to stockholders, voting and proxy procedures, the regulation of the transfer of stock and other general corporate matters.
Bylaws generally may be adopted, amended or repealed by either the board or by a vote of the stockholders.
Bylaws for startup companies are rarely customized. Occasionally, companies may include an IPO lockup or a right of first refusal on stock transfers in bylaws. This might occur if shares were not originally issued with these restrictions and a company merges into a newly-formed company in order to force these restrictions on prior stockholders in connection with a venture financing.
When a company goes public, the bylaws are typically amended to prevent stockholder actions by written consent, limit the ability of 10% stockholders to call a special meeting, and provide advance notice requirements for stockholder proposals and director nominations.