Codes of Regulations and Bylaws

A corporation’s code of regulations regulates and governs the internal affairs of a corporation and the relationship among the corporation and its shareholders, directors and officers. The code is essentially a contract among those constituents and it addresses the governance and management of the corporation. A code of regulations is an extremely important tool for avoiding conflict.

Governance and management issues that seem insignificant may become stumbling blocks if regulations are not in place to address them.

Some of the more important aspects of a code of regulations include:

• the time and place of shareholders’ meetings, the manner in which they may be called, notice, quorum and voting requirements for meetings and procedures for taking action without a meeting;
• the number, classification, terms, and manner of fixing compensation for directors;
• the time and place of directors’ meetings, the manner in which they may be called, notice, quorum and voting requirements for meetings and procedures for taking action without a meeting;
• the appointment and authority of board committees;

• the titles, duties, authority, term of office and manner of fixing compensation for corporate officers;
• the rights of officers and directors to be indemnified by the corporation; and

procedures that spell out how the code of regulations is amended by the shareholders.

In light of our country’s experience with terrorism and war, it has never been more important for businesses to address emergency regulations. In Ohio, a corporation’s emergency regulations are effective during times when the governor has declared a state of emergency, for example, after attacks upon the United States and natural disasters in general. In such situations, emergency regulations allow the corporation to continue operations, even if it would not have authority to do so under normal conditions. In the corporate setting, emergency regulations may allow any director to call a meeting. Further, the normal quorum requirements can be abandoned, when necessary, in favor of emergency quorums that may consist of any director or directors who appear at the meeting. Such emergency meetings and board actions can allow the business to move forward in even the most trying times.

Bylaws

Unlike a corporation’s code of regulations, corporate bylaws are internal rules enacted by the board of directors. Bylaws are less common than codes of regulations and are likely only necessary, if at all, for corporations with large and active boards of directors. While bylaws must be consistent with a corporation’s articles of incorporation and code of regulations, they have another purpose: to address the authority and internal governance of the corporation’s board of directors. In Ohio, bylaws are often confused with codes of regulations because the instrument Ohio refers to as the code of regulations is referred to as the bylaws in a number of other states.

In many instances, a corporation’s board members are entirely unfamiliar with the state law governing corporations. Therefore, it is common for a corporation’s bylaws to include summaries of the relevant statutes affecting the rights, authority and duties of the directors. For example, bylaws often will recite the specific provision of state law regarding the general authority of the directors. Bylaws also may address how to obtain a quorum of directors, how to take action without having a meeting, and how to remove directors and fill vacancies on the board.