Joseph W. Bartlett, Special Counsel, McCarter & English LLP, Co-Founder of VCExperts

McCarter & English LLP


The typical corporation statute authorizes the directors or the stockholders (or the incorporators prior to the date stock is issued) to adopt bylaws. These are usually canned documents that rephrase, and fill in gaps of, the statutory rules of governance. They are equivalent, in a sense, to Robert's Rules of Order: they specify how meetings of directors and stockholders are called, what constitutes a quorum, and what votes are necessary to adopt a motion. They set out such matters as the corporation's fiscal year, the time and place of the annual meeting, standing committees of the board and their powers, the duties of principal executive officers, and, of course, how the bylaws are to be amended. In some closely held companies, the scope of each executive's duties and powers may be the subject of intense negotiations; the bylaw provisions should be drafted to reflect the organizers' intent, consistent with the substantive provisions on this point in the Stockholders Agreement, if any, and/or each officer's employment contract. It is embarrassing to find one description of the president's duties in that agreement, drafted after elaborate negotiations, and another in a boilerplate paragraph in the bylaws.

In the author's view–with which some practitioners differ–the bylaws are not, as a matter of good practice, the place in which important substantive matters are to be placed; that privilege belongs to the charter or to agreements among the company and specific shareholders. The bylaws contain the nuts and bolts, procedural regulations that smooth the way for the company to operate. They are largely repetitive of the statute and can be amended by the directors without shareholder consent. The bylaws are not on the public record.


Introduction to Venture Capital and Private Equity Finance