Posts Tagged ‘Incorporate’

What are Corporate Bylaws?

Sunday, June 3rd, 2012

I had a client come into the office recently because of a disagreement between himself and the co-owner of the business.  The business was a validly formed corporation so I asked to see the corporate documents.  The client gave me the Articles of Incorporation.  When I asked for the Bylaws, the client said he didn’t know what that was and asked if that was a necessary document.

According to Virginia Code section 13.1-624, the people who start the corporation shall adopt initial bylaws for the corporation.  When you see the word ‘shall’ in the law, that means that it is required.  Unfortunately, the Bylaws are something that isn’t really checked .  The State Corporation Commission only requires an ‘Articles of Incorporation’ document to be filed at the time the corporation is started.  After the initial period, the State Corporation Commission only requires an annual report that will list any changes in the corporate address, or any changes in the names and titles of the corporate officers and directors.  They don’t really ask to see the Bylaws.

What this means from a practical standpoint is that there are many small corporations around that really don’t have bylaws.  As long as things are going along fine, there is no problem.  The problem arises when there is a dispute of any kind about how the corporation should act.  Without the Bylaws, there is no template to tell people what should be done.

Bylaws are the ‘rules’ of the corporation.  Some of the rules are simple, such as the month in which the annual meeting is to take place.

Some of the rules are more complex, such as what happens to the corporate stock when there is a death of one of the stockholders or what happens when the owners of a small corporation can’t agree.

I’ve had business clients tell me that I’m just trying to sell them something and that the corporate owners are best friends and there will never be a problem.  Some of these clients first came to me to handle a divorce action, but they just don’t see the similarity.

My advice regarding Bylaws is to first put in all of the ways things will work when things are going as planned.

Then go into the ‘what ifs’ in life.  What if the other owner gets married and I hate the spouse?  Can the other owner force me to hire to spouse to work with us?  What if I am in a car accident and I’m out of commission for a week?  or a month?  or 3 months?  or a year?  or I’m permanently disabled?  or in a coma?  What if I win the lottery and want to buy the other owner out of the company?  How much will it cost?  What if the other owner gets divorced, will part of the company possibly now belong to that spouse that I hate?…you can go on and on.

You’ll never cover every possible situation, but you can cover the most common types of events.  And the way you cover the common events can be used to interpret how you might have wanted to cover those strange instances.

I like to think of corporate Bylaws like the rule book used by professional golfers.  On most days, nobody has to look at the contents.  But, it’s nice to have when your ball has landed in a spectator’s lap and you need to figure out how to shoot and score the next shot.

If you have any questions about this or any other legal subject, please feel free to give us a call at 757-234-4650 or visit our website at

Do you have a Small Business ?

Saturday, October 31st, 2009

A lot of people set up a small business as a sole proprietorship, and this is fine. Often, there is no real compelling need to set up a separate business entity (such as a Corporation or an LLC), and the IRS will allow you to use Schedule C to track your business income and expenses.

The problem is when people don’t keep their business finances separate from their personal finances.

Most people are aware that they need to keep receipts for their business expenses, but often they forget that you also need to keep accurate records of your business income. If you don’t have accurate records, and you use the same checking account for both your business and personal finances, it is possible that the IRS will allocate some of your personal income to your business. For example, if you are the ‘team mom’ for a sports team and all of the members send money to you so that you can send one check to the photographer, it is possible that the IRS might allocate those ‘picture’ checks as income to your company.

The easiest way to eliminate this potential problem is to have a separate bank account for your business and use that account for all of your business financial activity and ONLY for your business.

Also, as mentioned previously, keep very good accounting records for your business, including receipts where possible and notes to yourself when an actual receipt is not available. Use this method for both income and expenses.

You can also obtain a separate EIN for your business. This EIN is like the Social Security Number you have for your personal identification, but it is used only for the business. Using this separate EIN is also useful if you need to provide tax id information to others and you want to keep your personal SSN secure from possible identity theft.

The other way to help eliminate potential problems with the IRS is to always file your taxes on time and be sure to make all of your payments on time and in the correct amount.

You don’t necessarily need to have an Accountant or CPA to assist you in this process, but if that is what it takes to keep you on track, you might find that it is cheaper to pay the Accountant or CPA to help you get it right the first time instead of paying someone to help you with an audit later!

The bottom line is that if you are running a business, you need to treat it like a business.

If you have further questions about your small business, or if you need some help in getting started, please contact our office at 757-234-4650 to schedule a short meeting. We would like the opportunity to help you get started!

I think I want to start my own business….

Saturday, October 31st, 2009

I get calls from people who say they think they want to start their own business and they want my help. Of course I can help them, but there are some steps they should go through first.

Before you even get to the point of deciding on a business name, or whether you should be a corporation or a partnership or a whatever, you first need to develop a mission statement and a business plan.

Let’s start with a mission statement.

A mission statement is a short, one paragraph statement of what your company will be. Think about where you want to be in 3 to 5 years and what you want people to say about your company. Do you want to be the ‘global leader’ in something? or do you want to be ‘the place where local people ….’? By clearly writing your mission statement, you are setting a goal for where you want your company to go.

It’s kind of like getting in the car to go on a drive, first you need to have a goal or you won’t know what direction to go first. If you want to end up in New York, you’ll drive North (from here in Virginia). But if you want to end up in Florida, you’ll drive South. Those are in opposite directions! So if you don’t know where you want to go, you might be driving a long time in the wrong direction.

You don’t want to do that with your new business.

So start with a goal. And formalize that goal by writing a mission statement.