Corporate by-laws are akin to a recipe for running a company. Similar to the ingredients and steps in a cooking recipe, by-laws outline the fundamental components and procedures that govern how a corporation operates. They detail everything from the roles of executives to decision-making processes, providing the necessary framework for a company's smooth functioning, much like a recipe ensures a successful dish.
Why Do We Need By-Laws?
A business’s corporate structure can be divided into three categories: the shareholders, the directors, and the officers. By-laws cover how each stakeholder within these categories operates, and the interrelation between them. Implementing a set of rules for this interconnected structure aligns the key actors in the company, thereby managing expectations.
Who Is Responsible For Implementing By-Laws?
Under the Canada Business Corporations Act (the “CBCA”) and the Quebec Business Corporations Act (the “QBCA”), by-laws are made by the board of directors and are subject to shareholder approval. The board of directors may not delegate its power to adopt, amend, or repeal by-laws (QBCA). For example, the board cannot task its officers with the responsibility of adopting by-laws.
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What is the Difference between the By-Laws and the Articles of Incorporation?
Under the CBCA and the QBCA, the articles of incorporation is the document that sets out to create the corporation. Once the articles are filed, and accepted, the government entity issues the certificate of incorporation (think: birth certificate). The information found in the articles of incorporation is often static and does not tend to change. By contrast, by-laws focus on the internal regulation of the corporation.
While the articles of incorporation require the approval of the appropriate governing entity, Corporations Canada for federal companies, and the Registraire des entreprises in Quebec, the by-laws require only internal approvals to become effective.
Finally, the articles of incorporation are generally public documents and may be accessed by third parties. The by-laws, however, are an internal document, which is only accessible to authorized persons.
In the event there is a conflict between the provisions of the articles of incorporation and the by-laws, the former will prevail.
Can By-Laws Be Amended After They Are Implemented?
By-laws may be modified after they have been approved. This responsibility is shouldered by the board of directors, who must then submit them to the shareholders for approval. The shareholders can decide to ratify, reject, or amend them. If the by-laws are rejected or they are not submitted for approval, then they cease to be effective at the close of the shareholder’s meeting.
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This blog post is not legal advice and is for general informational purposes only. Always speak with a lawyer before acting on any of the information contained herein.