What Are By-Laws?

 

Mark Briggs Attorney on By-Laws:

Mark Briggs on By-laws

What are by-laws?

Every business larger than a sole proprietor needs written rules to ensure it operates efficiently, cost-effectively and predictably, while minimizing confusion and disputes. For a business that is organized as a corporation (as opposed to a partnership, LLC or other non-corporate structure), by-laws are the primary set of these written rules. By-laws tell you who is responsible for making certain decisions, how big decisions are made, and how the stockholders of the corporation are involved. By-laws are usually developed before or during the founding of the business, but many start-ups ignore corporate formalities like by-laws until they get beyond the self-funded stage. Generally, the earlier you get the by-laws in place, the better, because you never need them until you need them.

 

What is included in a corporation’s by-laws?

 

There is no universal standard list of what must be in a corporation’s by-laws, but they almost always address at least these questions:

 

  • Board of directors and officers: How many officers and directors will there be? How are they chosen? How long do they serve? What will their responsibilities be? These are all questions to address in your by-laws.
  • Corporate meetings: When, where and how are meetings of the directors and shareholders held? Who is in charge of the meeting? What kind of notice must be given of meetings? Can actions be taken by written consent instead of a meeting?
  • Voting procedures: How many people are needed for vote to be taken (the quorum)? How will a vote be counted? Can someone vote by written proxy? How are nominations made? Which issues can be voted upon?
  • Stock: Will there be only common stock, or will there be multiple classes of stock? How many shares of each class will there be? What are the rights and obligations of shareholders? If some classes of stock will be designated in the future, who will determine the features of those and how? Can shareholders re-sell their stock to anyone at any time, or are there restrictions on the resale of their stock?

 

How do I write by-laws?

 

Including this much information in the early days of your business’ operations may seem daunting, but remember: Just like any other governing document, the by-laws can be amended over time as your business grows and new needs are identified.

 

Having the right set of by-laws in place helps ensure your business operates the way you want it to, without confusion or error. I recommend getting your attorney to assist you, as by-laws are impacted by the laws of the state in which your corporation is created. So, what may work well in California might be a problem in Delaware. If your budget does not allow you to invest in legal services, you can also try using a self-help service like LegalZoom.com to get a generic template of by-laws that will comply with your state’s laws. When you can afford a lawyer, you should have the by-laws reviewed and revised, because they should be tailored to your company’s situation. Remember: If things get rough at your company, the by-laws can save it from disaster or be the match thrown into the powder room. Waiting until trouble happens is usually too late to fix problems in a shoddy set of by-laws.

 

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Mark Briggs Phoenix Attorney on Limited Partnerships and Their Specific Advantages

Limited Partnership

Limited partnerships definitely have advantages, but they are also so complex that starting a limited partnership requires a lot of paperwork that should be completed by an attorney. They can be unequal partnerships that give some partners far more responsibility and ownership than others. In fact, this disparity is what distinguishes limited partnerships from general partnerships.

Limited partnerships are more complicated than general partnerships. Owner-partners are classified in two ways:

  1. General partners manage the business and are personally responsible for its debts.
  2. Limited partners contribute capital, share profits, and do not participate in management of the business. They are not responsible for debts of the firm.

Limited partners are like shareholders of a corporation because they aren’t liable for debts, which make it easier for general partners to attract them to invest.

Limited Partnerships and Taxes

A limited partnership does not pay income taxes, but its partners do. Its income is instead imputed to its partners, who report their respective shares of the partnership’s income on their individual tax returns and are responsible for income taxes on that income.

Examples of Limited Partnerships

One derivation of limited partnerships is the limited liability partnership. Many professional services businesses, such as law firms and accounting firms, are formed as limited liability partnerships. One advantage of this entity is that the partners are not usually personally responsible for the liabilities of the business, even if they participate in management of the business like a general partner in a limited partnership.

Getting Started in Forming a Limited Partnership

Although you will need a partnership agreement and should get a lawyer to help you write that document, you can get started in forming the entity by completing and filing a Certificate of Limited Partnership. The Arizona Secretary of State’s office charges a filing fee of $10 plus $3 for each page. Other fees are listed on the office’s website.

The state accepts limited partnership forms at its office in person on weekdays from 8 a.m. to 5 p.m. The office is on the first floor of the Executive Tower of the State Capitol at 1700 W. Washington, between Jefferson and Adams. You can also mail the form to:

Secretary of State
Attention: Limited Partnerships
1700 W. Washington Street, 7th Floor
Phoenix, AZ 85007
The Secretary of State’s office also answers on its website’s FAQs.
Photo Credit: Caitlin Childs

Mark Briggs Phoenix Attorney: Purpose of Operating Agreements

Mark Briggs Phoenix Attorney

What is the purpose of an operating agreement?

Limited liability companies, or LLCs, are very attractive to small business owners, and for good reason: compared to other types of business entities, LLCs are easy to set up, easy to maintain, and offer increased personal protection. (Read more about LLC’s here.) Although LLCs require less paperwork than, say, an S corporation, they do require an operating agreement to be put in place.

What’s an operating agreement?

An operating agreement is a written document – typically 10 to 30 pages – that sets forth the financial and functional aspects and responsibilities of the business. Once the agreement is written, LLC members sign the agreement and are then bound by its terms just like any other contract. Arizona does not require that operating agreements be filed, but you should keep a copy with your attorney and in a central place where you keep important records.

The rules regarding the structure of the document are fairly flexible; in general, an operating agreement is written in such a way as meets the needs of the owners.

What elements are included in an operating agreement?

An operating agreement outlines a business’ internal operations by including the following information:

  • Each member’s percentage of ownership
  • Each member’s voting rights and responsibilities
  • The responsibilities and powers of each member
  • Distribution of the business’ profits and/or losses
  • Information about business meetings, including frequency
  • Rules regarding the transfer of interest in the business

Why does my LLC need an operating agreement?

There are three primary advantages to having an operating agreement:

Personal liability protection: The primary purpose of an LLC can be found in its name. It limits the personal liability of the members in the event of legal action against the company. The operating agreement acts to protect that limited liability status, and without it, it may be difficult to prove that your company is not simply a sole proprietorship or partnership, both of which can leave you exposed or held liable for damages brought against your company.

To put oral agreements in writing: Communication is imperfect at best.  Ever try the “telephone game”? So, important agreements like operating agreements should always be put in writing so everyone knows what the deal is. Also, after it is signed, nobody looks at their operating agreement until there is a dispute about something. So, the operating agreement will be an important tool in resolving conflicts between the members of the LLC.

To avoid your state’s default laws: If your LLC does not have an operating agreement, default state laws regarding LLCs will be put into play. These laws are written in very broad terms to ensure they apply to a wide variety of businesses; as a result, these laws probably will not be ideally suited for your situation.

Is an Arizona LLC required to have an operating agreement?

No, but it is really dumb not to have one in place. Really expensive, time-consuming fights can be completely avoided with a thoughtfully drafted operating agreement.  Some LLC owners forget to draft the operating agreement or try to save money by not doing it, and they almost always regret it sooner or later.  You will spend more money in one day fighting with your partners than it would cost to just get the operating agreement put in place up front.

Photo Credit: Aidan Jones

Sources: http://www.sba.gov/community/blogs/community-blogs/business-law-advisor/operating-agreements-basics-0,http://www.keytlaw.com/azllclaw/forming-llcs/arizona-llc-operating-agreement-faq/


Sources: http://www.sba.gov/community/blogs/community-blogs/business-law-advisor/operating-agreements-basics-0,http://www.keytlaw.com/azllclaw/forming-llcs/arizona-llc-operating-agreement-faq/

Antitrust lawsuits: how they help protect small businesses

Phoenix lawyer Mark Briggs explains how antitrust lawsuits can protect small businesses, consumers, and the labor market from the negative impact of monopolies and oligopolies.

The American economic system is predicated on free and fair competition in an open marketplace. A lack of free competition harms the little guy: consumers, small business owners and workers.  Unfortunately, the American economic system also rewards companies and people who can control a large portion of a market so that there are no meaningful competitors for a particular product, natural resource or service.  The increased prices that result from this lack of competition are the primary harm, but product quality and innovation also tend to suffer in those situations.  Continue reading

Advice for solo practice attorneys from Phoenix lawyer Mark Briggs

You should always be on the lookout for advice for solo practice lawyers. By following tips, you can be well on your way to running a solo practice that is both reputable and successful.

Mark Briggs Phoenix attorney knows that running a solo practice will be stressful, and at times, it will be completely overwhelming.  Here are a few tips to help you stay on top of your business and make it successful:

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I want to start a business. What are the legal requirements?

Want to start a business? It can seem like a bit of hassle. From creating a business plan to acquiring funding to meeting legal requirements for business, there are many things involved. Here is what you need to know:

Starting your own business can seem a bit scary at first, but with the help of a good lawyer on your side, you can rest assured you will understand all the legal requirements for business that need to be met. You first need to decide how you want to form and organize your business. There are three main types of structures: sole proprietorship, partnership and corporation. Click here for an earlier blog providing an overview of basic business structures. You can also read my more detailed posts on S-Corporations and C-Corporations. Continue reading

Mark Briggs Arizona attorney: what can CEOs disclose via social media?

Mark Briggs Arizona attorney on how much information the CEO of a public company can disclose on social media.

If you’re a public company CEO, be very careful about what you post through social media because anything related to your company risks running afoul of SEC disclosure rules. While you can use social media to connect with your investors, you need to take the same care that you would when distributing information through traditional channels. Continue reading

Mark Briggs Arizona Attorney: Beware Of COBRA’s Bite

What exactly is COBRA? In this week’s blog post, Mark Briggs Arizona attorney explains COBRA and it’s implications for small business owners.

Enacted in 1986, the Consolidated Omnibus Budget Reconciliation Act (COBRA) amended prior laws, including the Employee Retirement Income Security Act (ERISA), to allow employees whose group health coverage is terminated to temporarily continue coverage. Continue reading

How might the Affordable Care Act impact small businesses?

The Affordable Care Act includes numerous provisions that affect small businesses. However, there are at least three perspectives on their impact — pro-Obama, anti-Obama, and neutral. In this week’s blog post, Mark Briggs lawyer reviews all of them.

When President Barack Obama proposed the Affordable Care Act — technically known as the Patient Protection and Affordable Care Act and known to large segments of the American public as Obamacare  — in 2009, Obama’s political allies and opponents argued over the proposed bill’s impact on small businesses. Continue reading

Mark Briggs Phoenix Attorney: Patent Law

In this week’s blog post, Mark Briggs Phoenix attorney discusses common misconceptions about patents.

I would like to continue our exploration of intellectual property protection—an ever-relevant realm for any aspiring entrepreneur. In the past, we have looked at trademarks (what they are, and how to file for one) and copyrights (what they are, and how to register one.) This week, we move on to the third major player in the intellectual property game: patents. Continue reading