If you start a corporation, you must create corporate bylaws, but there is no obligation to create a shareholder agreement. However, it may be to your advantage to do so, especially if your company has more than one shareholder, which is usually the case even for small businesses.
According to Chron.com, bylaws set forth the rules and regulations by which the corporation will operate. Not only are bylaws necessary, but they must comply with state corporate law. For example, the bylaws should set the time and date that the annual shareholder meeting, which state law requires, will take place. The board of directors holds an organizational meeting to write corporate bylaws shortly after filing the articles of incorporation with the state.
However, bylaws only go so far. They do not say anything about shareholders’ rights or their obligations to one another. Though not required by state corporate law, a shareholder agreement does address the relationships between shareholders.
For example, someday you may wish to withdraw from the company voluntarily, or unfortunate circumstances may arise that render you unable to continue your involvement in it. The shareholder agreement may include a buy-sell provision that would clearly describe what should happen in this situation. This may help to avoid business ownership disputes that could otherwise result.
If there is a dispute between the corporation’s bylaws and the shareholder agreement, the latter usually takes precedence. The shareholder agreement should include a provision for when a situation like this arises. Following the resolution of the conflict, the next step should be to amend the bylaws to reflect the change and revise the wording that caused the initial dispute.
