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The Dangers of Violating Corporate Bylaws Can Result in Business Litigation

The Dangers of Violating Corporate Bylaws Can Result in Business Litigation

The business empire is necessary for the function of a healthy society. Daily, management, and employees work hard to ensure that businesses are successful and profitable for the board of directors and the shareholders.

As an executive of the company, you understand how important it is for the corporation to align its mission and values. These values are nowhere else as apparent, as in the corporate bylaws.

Employees must do their part in promoting the company’s values to contribute to the broader community by remaining profitable for years to come.

Simultaneously, every member of your business organization may not take the core mission seriously and decide to violate the corporate bylaws.

You must understand this situation and know what is at your disposal to remedy the occurrence as expediently as possible.

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The Best Interest of the Organization

Shareholders take great comfort, knowing that their bylaws provide the blueprint for a viable and successful business. When this is gone, they may lose interest in the company as they sell their shares to look for greener pastures elsewhere. The bylaws give every business interest in safety and security.

During preorganization, a new corporation must register with the state as a new business entity. The government will require that the registered agent file the corporate bylaws during inception as a necessity of formalities.

Enforceable Contract

Essentially, the corporate bylaws are an enforceable contract that establishes how a business should operate. The bylaws also explain every person’s role in the organization.

Furthermore, corporate bylaws provide guidance in the case of a legal dispute while preventing future business litigation. Most corporate bylaws will contain:

  • The name of the business entity
  • The individual members
  • The names of the officers and vital board members
  • The terms for the calling and conducting of special meetings
  • The provisions for transactions, buyouts, and business purchases

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The Consequences for Violating the Corporate Bylaws

Not only do the organizational bylaws offer legal protections, but they also provide a shield of accountability for corporate board members and employees. To mitigate damages, it is vital to have a business attorney to draft the corporate bylaws to avoid negative consequences. Accordingly, there are three significant consequences for violating the contract:

  • For internal liability, members may have large settlements for causing financial distress for other employees or board members.
  • Perchance the business organization suffers financial losses or a criminal investigation; the violator may face jail time or fines for illegal activity.
  • Finally, in external liability, a member may violate the corporate bylaws, leading to third-party losses and hefty settlements.

Business Litigation

Organizations change over time. Thus, at times, it is necessary to update the corporate bylaws to function in modern society. A business litigation attorney could draft, edit, and revise your corporate bylaws. As the need arises, an attorney can initiate civil litigation or defend the corporation against a lawsuit.

The decision to file a legal claim against an employee should never be taken lightly. After much discussion, business litigation may be the only remedy to prevent immense damage to the corporate image and mitigate its adverse side effects.

Protect your business interests by making sure employees are adhering to the company’s bylaws. The Law Offices of Nicholas D Heimlich, located in San Jose, CA, would be delighted to address your concerns during a free case review. We also serve the following cities:

  • Palo Alto CA
  • Santa Clara CA
  • Saratoga CA
  • Mountain View CA
  • Los Gatos CA

Contact the Law Offices of Nicholas D Heimlich today to schedule your free case review. A business attorney would evaluate your case for clarity and understanding.