Hidden Danger: Corporate Meeting Provisions in By-Laws

March 5, 2019

 

Routinely business owners and general practitioners will establish corporations using form documents or corporate agents.  If the business is and will be owned in perpetuity by a single individual then using this short cut approach to formation is a quick and efficient track.

 

If, however, the business is or will ever be owned or managed by more than one person (whether a family business or otherwise) than using this quick incorporation path is filled with hidden dangers.  Those dangers will loom large in the event of a dispute between shareholders or directors of the corporation.

 

One of those hidden dangers involves provisions regarding who is empowered to call a corporate meeting. 

If shareholders or directors are not acting in unison, then a corporate meeting is the way in which corporations can take action.  At a meeting of the shareholders or directors, agenda issues are discussed and voted on.  Once a vote is taken, the shareholders, directors, or officers, are authorized to proceed in accordance with a vote.

 

Most form corporate by-laws provide that only the President or Chair of the Board can call a corporate meeting. This means that if the President or Chair of the Board is opposed to some corporate action (even if the other owners/directors are in favor), then he or she can simply refuse to call a meeting and the corporation cannot move forward on the matter.

 

In essence, the form corporate by-laws are providing the President or Chair of the Board with a veto power on any corporate action.  If the President or Chair of the Board is the only one who can call a meeting, then they completely control the what actions the corporation will consider and take.

 

And the New York State Business Corporation Law (“BCL”) Sections 602 and 710 provide no relief for poorly drafted form corporate by-laws that that only the President or Chair of the Board can call a corporate meeting.  The BCL simply provides that meetings can be called by those empowered by the corporate documents.

 

Because the corporate by-laws control the critically important issue of who can call a corporate meeting, business owners and practitioners most carefully focus on this issue.

 

For more information about corporate matters or other issues regarding the operation of your business, please contact Judith Bachman, Esq. at The Bachman Law Firm PLLC at judith@thebachmanlawfirm.com or 8456393210.

 

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