The importance of laying a solid foundation for your startup cannot be understated. In the excitement of planning for the launch of your new company, it can be tempting to press forward and leave some of the seemingly mundane tasks by the wayside. Formalities and legal protections, the things that may seem not so thrilling, can be incredibly important.
Take company bylaws, for instance. This is the document that will set forth the business of your business. It will address how your company will be managed. It will address how your company will be directed. Having a decision-making framework in place will help prevent so many needless headaches for you and the business as a whole far into the future. Bylaws can also address things like the rules and procedures for shareholder actions as well as director actions. Put the protocol in place now and reap the benefits as your business grows.
Establishing Bylaws for Your Start-Up
Are you still thinking you can put bylaw creation further down on your to-do list? Well, here are a few more reasons to reconsider doing so and making the establishment of solid bylaws for your startup a priority:
- Partners may start, but not stay on the same page: Sure, you and your partners and co-founders of your start-up may begin with all the same goals and plans for your start-up. The truth is, however, that this is likely to change. At one point or another, it is possible that you and your partners will be on different pages. The extent and severity of these difference may run a wide range, but it is important that you have procedures in place to handle these differences so they do not blow up into something bigger, legal, and more costly.
- Not all partners are likely to be experienced in business: For a startup, it may very well be the case that one or more of the partners are not experienced business professionals. One or may could be a person with a great business idea and dreams of growing it. With varying levels of experience and inexperience among startup partners, a bylaw can streamline things to avoid problems. There will be guidelines and procedures set forth to establish sound internal governance protocols.
- Observance of corporate formalities can limit legal exposure: Corporations provide protection from founders being exposed to personal legal liability for corporate dealings. This is the corporate veil. In instances when it seems as though it is closely held and formalities have not been really observed, a court may see fit to pierce the corporate veil and so that a plaintiff can go after those running the business personally. This is referred to as “piercing the corporate veil.” Avoid personal liability exposure for the dealings of your start-up and put things in place such as bylaws which give it credibility as a solid corporate entity.