How Violating Company Bylaws
Can Lead to Litigation
July 21, 2022
Running a large corporation can feel like an arduous process. On top of dealing with rigid formalities, double taxation, and stiff competition, you also need to make sure that you are following company bylaws.
Large companies have more order and structure, which is why there is more accountability involved. As a board director or officer, you need to understand the importance of following company bylaws and how violating those bylaws may lead to litigation.
If you are facing civil action for violating company bylaws, you might need a consultation with a skilled attorney. As a business litigation attorney at Uloth, P.C., I understand that litigating a business dispute can be an expensive endeavor. That is why it is my goal to assist clients in Dallas and other parts of Texas, including Plano and Addison, with resolving their corporate disputes in the most practical and effective way possible.
Company bylaws, also known as corporate bylaws, are legal documents that contain a set of rules that govern the corporation’s day-to-day operations. These written rules are legally enforceable among members of the corporation. Usually, corporate bylaws address the following:
The name of the entity
The names of the members of the corporation
How the corporation is operated
The company’s management structure
The leadership roles of corporate officers and board members
The provisions for buyouts, transactions, and others
The dispute resolution processes
Company bylaws are used to create certain rights and obligations among members of the corporation. The consequences of violating company bylaws can be dire and may even lead to litigation.
Common Violations of Company Bylaws
Company bylaws exist for a reason. They ensure that everyone understands their rights and obligations so that the company will run smoothly and efficiently. Directors and officers must follow the rules and procedures outlined in company bylaws. When members of the corporation violate company bylaws, they can face various adverse consequences.
Some of the most common types of company bylaws violations are:
Missing too many meetings
Abusing one’s authority as a director
Putting one’s own interests ahead of the company’s
Denying shareholders access to company records
Engaging in improper hiring and firing tactics
Refusing or failing to pay dividends
Failing to act in good faith
Stealing corporate resources
These and many other violations of company bylaws can lead to disciplinary actions, removal from office, civil lawsuits, or even criminal liability. If you are facing a civil action from a shareholder, director, or another party for violating company bylaws, seek immediate legal guidance from an experienced business litigation attorney.
Consequences of Violating the Bylaws
Since company bylaws are generally enforceable as a contract, failure to follow the rules and procedures outlined in bylaws can have various consequences depending on the nature of the violation:
Removal from office. A member of the corporation could be removed from office for the violation.
Internal liability. A member could face disciplinary action or be required to pay fines.
External liability. If the violation caused harm to a third party, a member would be liable for the losses resulting from the violation.
Dissolution of the corporation. In some cases, a court may order the dissolution of the corporation when disputes cannot be resolved.
Criminal liability. Depending on the circumstances of the violation, a member may face criminal charges for not following company bylaws.
Company bylaws impose accountability for members of the corporation. When a violation occurs, the violating party could be sued via a lawsuit. While many corporate disputes are handled outside of the courtroom, some lead to litigation. Rely on trusted and experienced guidance so that you know what options are available in your case to avoid litigation.
Trusted and Experienced Business
If you are a member of a corporation facing civil action for violating company bylaws, do not hesitate to speak with a business litigation attorney to discuss your course of action. At Uloth, P.C., I help clients resolve their bylaws violation disputes in and outside of court in Dallas, Texas. I am dedicated to helping you navigate the complexities of your dispute and protecting your best interests. Discuss your unique case by reaching out today.