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The importance of bylaws when creating a business

Business Law
The importance of bylaws when creating a business

The importance of the bylaws when establishing a company dates back to the very existence of commercial companies, in which the previous step for their foundation and operation was the need and requirement that there be a law or similar legislative provision to give birth to society, thus allowing its action, also establishing its object, powers and legal regime.

Thus, the statutes of a company are the set of rules that determine the internal regime of the company, vis-à-vis third parties and among the partners themselves. They also contain the data referring to the share capital, domicile and the purpose of the activity that the company will carry out.

At the same time, the bylaws contemplate those ways to distribute dividends, functions of the administrative body, formation of the board of directors, main activities of the company, the duration, among others.

Hence, one of the main mistakes when setting up a company is not paying enough attention to the wording of its statutes, sometimes even choosing to copy and paste a standard model that probably does not fit to what it takes.

Where does the importance of the bylaws lie?

They regulate the agreement between the partners of a company and their relationships with third parties; therefore, as it is a constitutive agreement entered into between the shareholders themselves, it is mandatory both for those who constitute the company at that time and for anyone who joins in the future.

However, so that it can take effect between third parties and even that company is recognized at the time of doing business with banks, public or private entities, the Tax Administration, etc., the bylaws must be made in a public document. 

What are the elements to take into account in the bylaws?

The statutes must contain:

- The purpose of the company's social activity: there it should be pointed out what type of commercial activity it will be engaged in, being specific as far as possible since if it is carried out in a generic way it can become an obstacle when positioning it in the market.

- Define the Board of Directors and governing Administrative Body: the way in which decisions will be made, as well as the direction or management of the company must be established in the bylaws, in which the functions that each one will have according to the position will be determined assigned to it.

- Legal representation of the company: it is important to define the person who will have the responsibility of representing the company before the authorities and before third parties, being able to enter into contracts, negotiations, among other powers that must be explained in the statutes. Even define the way in which powers of representation can be granted according to the needs of the company.

Other recommendations

As indicated by Forcam Lawyersthe bylaws are a contract, therefore the regulation made of the activities of the company will allow the generation of operating conditions, which is why in addition to the essential requirements that it must contain, the related can be included to:

  1. Sale of shares, transfer thereof, limitations.
  2. Rights related to the separation of the partner.
  3. Everything related to the exclusion of partners and the causes that originate it.
  4. Ways to vote in shareholders' meetings.
  5. Right of preference in the purchase of shares of the partners.

It is also recommended that the drafting of the statutes be flexible and simple so that the commercial activity can be carried out without major complications but always safeguarding the rights of the company and its partners.

Contact us, and our expert business lawyers will study your specific case.

We offer quality legal and business advice to national and international companies. We are in charge of drafting the Bylaws of the companies according to the needs of our clients.