Website design By BotEap.comAlthough California does not require a business to have bylaws, here are six reasons why every business owner should invest in a strategically thought-out set of bylaws for their business: Website design By BotEap.com1. The Articles of Association are the Legal Vertebral Column of the Company. Website design By BotEap.comA company’s articles of association provide the framework for its operation, including the rules for the relationship of the owners. Website design By BotEap.com2. What happens if your company does not have statutes? Website design By BotEap.comIf your business does not have statutes in effect, California law will control how the business is run. It is far better for the owners to determine how they would like the business to operate than to rely on state statutes. Website design By BotEap.comIt is similar to an individual who does not have a will or a trust. If they die, state statutes determine how the person’s assets are distributed. Instead, the individual must think carefully about how he would like his assets to be distributed and establish the legal mechanism to enforce his plan. Website design By BotEap.comSimilarly, it is much better for business owners to think strategically about how they would like their business to operate than to rely on state statutes, which may not always be the best fit for the business. Website design By BotEap.com3. Statutes give owners peace of mind. Website design By BotEap.comEvery business eventually runs into challenges. Better to consider some of the potential turning points in your company and stipulate in your bylaws how you would like the outcomes of these situations to be determined than to wait to make these tough decisions when stakeholders and passions can create the perfect storm. for litigation. Website design By BotEap.comFor example, what will happen if there is a legal dispute between the owners? Do you want the company involved in the expense and distraction of litigation, or do you prefer arbitration? What happens if one of the owners dies? What happens if one of the owners wants to leave the company? Website design By BotEap.comBylaws present an opportunity to calmly and objectively reflect on these issues before they occur. It’s wise to answer these kinds of questions ahead of time and determine what might be the best solutions for your business than relying on default rules in state statutes or trying to work them out when clear ideas are less likely to prevail. Website design By BotEap.com4. Statutes help protect your company’s limited liability protection. Website design By BotEap.comOne of the main reasons for forming a corporate entity is possibly to have limited personal liability for potential business debts and lawsuits against your company. Website design By BotEap.comIf a company is unincorporated and sued, a plaintiff could try to “pierce the corporate veil” by claiming that the company should not receive the limited liability protection shield because its owners did not follow corporate formalities. Website design By BotEap.comIn determining whether to pierce the corporate veil, the court would evaluate a number of factors to determine whether your business is legitimate, including whether you have the proper corporate documents and records. By not having statutes, a business owner risks not receiving limited liability protection if sued. Website design By BotEap.com5. Bylaws help prevent misunderstandings between owners. Website design By BotEap.comCommunication and clear expectations are key to any successful relationship, including the relationship between business owners. The bylaws clearly state how the business will be run, which can be crucial in avoiding misunderstandings about how the owners expect the business to be run. Website design By BotEap.com6. You may need statutes to establish a bank account and obtain loans and insurance. Website design By BotEap.comFinally, if you want to open a business account or apply for loans, most banks will ask you to provide a copy of their articles of association. Also, insurance companies may require you to provide a copy of your company’s articles of association before providing certain types of policies. Website design By BotEap.comAs a business owner, it’s often tempting to cut corners to cut costs. A strategically thought-out set of statutes should not be one of these cuts. Instead, bylaws should be recognized for what they are: one of the wisest investments a business owner can make to ensure the long-term effectiveness of their business. Website design By BotEap.comDisclaimer: This post discusses general legal issues, but does not constitute legal advice in any respect. No reader should act or refrain from acting on the basis of the information presented in this document without seeking the advice of counsel in the relevant jurisdiction. Doug Bend expressly disclaims all liability with respect to any action taken or not taken in reliance on the content of this publication.