Bylaws define the organizational and operational structure of a CORPORATION. In addition to the articles of INCORPORATION (sometimes called a charter), which state the rights and responsibilities of the corporation, bylaws provide greater definition regarding the powers of managers, SHAREHOLDERS, and the BOARD OF DIRECTORS. Jane P. Mallor et al. note that a typical set of corporate bylaws cover:
• the authority of directors and officers, specifying what they may or may not do
• the place and time at which the annual shareholders’ meeting will be held
• the procedure for calling special shareholders’ meetings
• the procedures for directors’ and shareholders’ meetings, including whether a majority is required for approval of specific actions
• provisions for the creation of special committees of the board of directors, defining their scope and membership
• the procedures for the maintenance of records regarding shareholders
• the mechanisms for transfer of shares of stock
• the standards and procedures for the declaration and payment of DIVIDENDs
Bylaws are the rules guiding the behavior of shareholders, management, and the board of directors. Without them many disputes are likely to arise among owners and managers, and they provide greater transparency in corporate business decision making. Even with well-defined bylaws, corporate disputes and lawsuits frequently arise. In the 1900s, shareholders in many companies proposed changes in bylaws, including “shareholder-rights bylaws,” which would require the company’s board of directors to “pull the pill” when confronted with a hostile acquisition— that is, implementing anti-takeover actions to prevent another company from taking control of the company. Known as POISON-PILL STRATEGIES, shareholder-rights bylaws would direct specific action by the board of directors, but many legal scholars question their legality.