All posts by Waltz, Palmer & Dawson, LLC

TOP 5 PROVISIONS TO BE AWARE OF IN YOUR BYLAWS


Despite how important corporate bylaws are, they are rarely looked at. They dictate a lot of the internal workings of a corporation and cover some mundane topics such as corporate seals, the formation of committees, and how to take informal actions. But when things go wrong in the corporation, and a director needs to be removed or a do-or-die decision needs to be voted on, you want to make sure your bylaws lay out exactly how those processes should happen. Otherwise, you may end up in the middle of an unfair or otherwise undesirable situation with no recourse of action.

Here is a list of the top 5 most important provisions to be aware of in your corporate bylaws, so that when things go wrong, you can make them right.

#1 – SHAREHOLDER VOTING REFLECTED IN YOUR BYLAWS

Who gets to make the big decisions?

Corporations are controlled at two separate levels – the shareholders, and the board of directors. The shareholders may not have to vote as often as directors, since directors control day-to-day operations, but what the shareholders do vote on often has major implications for the company. For one, shareholders are the ones who decide what people sit on the board of directors. Much of their power is asserted through this vote, since they get to hand-pick the very people who will make many of the general operating decisions for the corporation. Shareholders also vote on other major decisions that affect the company in serious ways, such as the sale of the corporation or substantially all of its assets.

Considering that shareholders have such a mighty role in how the corporation fares, it is important to craft a set of bylaws that clearly lays out how often shareholders have to meet, and in what numbers they must vote to make an effective decision. More often than not, you don’t want to have a group of ten shareholders where the vote of merely two of them can effectively bind the entire corporation to their decision. Make sure your bylaws contain a level of control that you are comfortable with, whether that requires a majority vote of shareholders or something more, like two-thirds. The more votes required, the more likely it is to be a fair decision.

#2 – NUMBER OF DIRECTORS INDICATED IN YOUR BYLAWS

The number of directors can make decision-making harder or easier

While it may not seem important at first glance, the number of directors you have on the board can make a huge difference in how often decisions get made (and also how easy it is to come to those decisions). Small businesses, especially those that are run by families or close friends, may want to limit the amount of people who can be on the board to a small number that helps ensure the voices of those friends or family members aren’t drowned out by an influx of newcomers. It may also behoove you to limit the number of directors so that the group doesn’t become too big, with too many disparate voices having a say on corporate activity. On the other hand, having too small of a board may not be ideal if you want to avoid the risk of a deadlock. These kinds of considerations should be taken into account when setting the number of directors on the board.

#3 – DIRECTOR REMOVAL PROCESS IN YOUR BYLAWS

Don’t get stuck with the wrong people!

No one wants to think there will come a time when a trusted friend or colleague has to be let go, but reality can sometimes rear its ugly head and force us to do what we don’t like. There may very well come a time when one of your corporation’s directors ends up under-performing or otherwise doing a disservice to the business and needs to be removed. If that time ever comes, you want to make sure your bylaws have a clear process for how to go about effectuating that director’s removal.

#4 – INDEMNIFICATION SPECIFIED IN YOUR BYLAWS

What happens when your employees or a director gets sued?

There may come a time when an employee or a director is sued for something they did while acting in their official capacity with the corporation. Illinois law provides rules for how a corporation can go about indemnifying (or not) its employees and board members, but you may very well want to add other rules or change them to better suit your business’s needs. For example, you may not want the corporation to have to advance a director’s expenses for litigation. Or maybe you do, but only to a certain extent, such as advancement that doesn’t include attorney’s fees. Whatever the case may be, you want to make sure you have a section that contemplates what a corporation can or must provide to its employees and directors in case they are ever made party to a proceeding.

#5 – AMENDING THE BYLAWS

Don’t get stuck with rules that don’t work for you!

If there is one thing above all else that your bylaws should include, it is a provision for their amendment. Generally speaking, the “founding” documents for a corporation are the articles of incorporation and the bylaws. The articles are filed with the state, and require a bit more work to amend. However, the bylaws are just an internal governance document, and the corporation can determine how it goes about amending its own contract. As with many other provisions in the bylaws, it is important to strike a balance between making sure the vote is fair with sufficient representation of people, and also making sure that it isn’t so hard to get a vote that the bylaws effectively will never be amended. Whether this will require a majority or supermajority vote is a decision to be made based on individual context, but regardless, providing for the amendment of your corporation’s bylaws will ensure that you can go back and make any necessary changes to your internal governance structure.

Bonus Tip – BYLAWS FOR CERTIFICATION PURPOSES

Don’t risk your WBE/MBE/VBE Certification!

It is also important to note that many of the provisions mentioned here are relevant to WBE/MBE/VBE certification. These types of businesses require a showing that control resides in a disadvantaged group, such as women or minorities. If your business fits the bill, you want to make sure that your corporate documents, such as your bylaws, reflect that reality. Shareholder and director voting are two key areas that show where the control of your corporation lies.

Should you have questions regarding corporate bylaws or other legal needs for your business or would like to schedule a no-charge initial consultation to discuss questions you have about your business, please contact Waltz, Palmer & Dawson, LLC at (847) 253-8800 or contact us online.

Waltz, Palmer & Dawson, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law, Collaborative Divorce & Mediation.

This article constitutes attorney advertising. The material is for informational purposes only and does not constitute legal advice.

 

PAOLA ASCENCIO AWARDED “OUTSTANDING ATTORNEY” DURING ISU’s MOCK TRIAL TOURNAMENT

Paola Ascencio, Paralegal at Waltz, Palmer & Dawson, LLC and mock trial competitor for Northern Illinois University, participated in the Illinois State University’s Annual Mock Trial Invitational Tournament earlier this month. The competition took place at the McLean County Courthouse (Law & Justice Center) in Bloomington, Illinois. The 3-day tournament consisted of 32 collegiate teams, including schools from 6-7 different states.

Out of 96 attorney scores, only 13 attorneys received the outstanding attorney designation. Waltz, Palmer & Dawson, LLC is proud to announce that Paola Ascencio was one of the 13 honored with the Outstanding Attorney Award.Led by coaches Mitch Pickerill and Katie Harper, NIU’s Mock Trial Team earned an honorable mention, winning 5 out of 8 trial scores (5 wins, 3 losses). Congratulations to Paola and her team!

 

WHEN IS THE BEST TIME TO PLAN? The answer is simple—NOW.

It’s National Estate Planning Awareness Week!  Take some time in the next couple of months to consider your estate plan – whether doing it for the first time or updating — before the fall and winter holidays take hold of you.  This is really important for you and your loved ones.

We all know that bad things happen, and usually when you’re least expecting it.  We are all busy living our lives, day by day, trying to get through our endless “To-Do” lists.  But a life-changing, or life-ending, accident or illness can strike at any time and at any age.  None of us are immune from this.  So plan for it now.

A basic estate plan for everyone over the age of 18 should consists of:

  • Advance Directives for Health Care (i.e., Health Care Power of Attorney, Living Will, HIPAA Authorization)
  • Property (or Financial) Durable Power of Attorney
  • Simple Will

If you do nothing else, get these documents in place!  They can make a world of difference for you and your family if you ever become incapacitated or die.  And remember that, even though you may be only 18 years old, or you eat healthy and exercise every day, you are not invincible. Do you really want your family to suffer any more than necessary if something happens to you?

In addition to these basic documents, most people need to do a little more.  This is because protecting assets for our children or other beneficiaries and avoiding unnecessary court costs and legal fees upon your death or disability cannot be accomplished if you stop here.

In 2019, there is a federal estate tax exemption of $11,400,000 and an Illinois estate tax exemption of $4,000,000.  This is great news for most people, eliminating an estate tax as a concern, but you may be surprised by the time you add up life insurance policies, real estate, retirement accounts, CDs, brokerage accounts, and other assets how close you may be to these amounts.

Even if you are nowhere near these exemption amounts, there is a lot of planning you can do to protect yourself and your family from unnecessary expenses and disputes, creditors, and divorce, and possibly take advantage of income tax and capital gains tax planning strategies that are available.

There is no time like NOW to prepare or update your documents.

Consider this — If you are married and have estate planning documents (e.g., revocable living trusts with “A-B trusts” or “Marital and Credit Shelter Trusts”) that were done years ago, back when the estate tax exemption was somewhere between $600,000 and $2,000,000, you are likely to have a result that you do NOT want when you or your spouse passes away.  This is because those trusts were designed to work for you when we had a much lower estate tax exemption, but should probably be updated to reflect the current laws.

We would be happy to sit down and talk with so that you can take steps to provide for yourself and your loved ones.  Should you have any questions estate plans, or would like to schedule a free initial consultation, please contact Waltz, Palmer & Dawson, LLC at (847)253-8800 or contact us online.

Waltz, Palmer & Dawson, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law, Collaborative Divorce & Mediation.

This article constitutes attorney advertising. The material is for informational purposes only and does not constitute legal advice.