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Study of Corporation Bylaw

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Study of Corporation By-laws

Table of Content

I. Introduction

II. Standard template of Corporation By-laws

III. Case study (focus on corporation control provision) a. JP Morgan b. Lorillard c. KRAFT d. NYACS e. DUPONT CIRCLE CONSERVANCY

IV. Summarization

I. Introduction Corporate and organizational bylaws contain the rules and procedures that regulate the organization to which they apply and are generally concerned with the operation of the organization. It can govern the rights and powers of shareholders, directors, and officers. Generally, Bylaw of a corporation cannot be amended only by organization's board of directors. A super-majority vote of the membership, which means two-thirds present and voting or a majority of all the members, is usually required to amend bylaws. Therefore, corporation bylaw is an important regulation for the top of the company to restrict and supervise each other, and impel the members to achieve the common goal for the company.
In order to further study the practical application of corporation bylaws, there are 5 actual corporation bylaws from different industries will be compared and analyzed later.

II. Standard template of Corporation By-laws
Bylaws widely vary from organization to organization, but generally cover topics such as how directors are elected, how meetings of directors (and in the case of a business, shareholders) are conducted, and what officers the organization will have and a description of their duties. Most lawyers have a prepared "standard" set of template bylaws that may be modified to meet your company's specific requirements. Here is a sample of corporation bylaws template:

ARTICLE I. NAME & PURPOSE
 Section 1. Name Section 2. Statement Section 3. Vision
ARTICLE II. MEMBERSHIP
 Section 1. "Members"
 Section 2. Meeting of members Section 3. Registration Section 4. Voting Section 5. Mailings
 Section 6. Removal
ARTICLE III. MEMBERSHIP STRUCTURE Section 1. Chapters 
 Section 2. Steering Committee 
 a. Name & Number 
 b. Responsibilities 
 c. Nominations 
 d. Selection Process 
 e. Term of Office 
 f. Vacancies 
 g. Positions Section 3. Standing Committees 
 
 Section 4. Allies 
 a. Supporter 
 b. Advocates 
 Section 5. Corporate Sponsor

ARTICLE IV. FISCAL AFFAIRS
ARTICLE V. GENERAL AMENDMENTS
ARTICLE VI. CONFIDENTIALITY AGREEMENT
ARTICLE VII. NONDISCRIMINATION STATEMENT III. Case study Based on the bylaws template from last section, we can apply some actual companies into this model to compare the difference between their corporation bylaws. Here, 5 public companies are chosen from different industries, and we will focus on comparing the difference of their corporation control provision. The 5 companies are JP Morgan (bank industry), Lorillard (Tobacco industry), KRAFT (Food industry), New York Section, INC. of The American Chemical Society (Chemical industry), and Dupont circle conservancy (Environment Industry). Unlike the other companies’ bylaws, some companies’ bylaws omit the ARTICLE I NAME & PURPOSE. The reason for this is probably because these companies have been operating in their field for a long period of time, and the companies’ value and its mission are ingrained in people’s mind. For example, JP Morgan, Lorillard and Kraft are three of 10 oldest public companies in the U.S. There are no clear statements about their companies mission in their corporation bylaws. For the other companies, like NYAC and Dupont circle conservancy, they generally have ARTICLE I their bylaws to expound their companies name and particular mission (or objective).
However, one vital factor, which would not be omitted in any companies’ bylaws, is the provision of corporation control. Although it is impossible for any company to solve agency problems completely, companies still may be able to minimize agency problems with proper corporation control. To put it simply, several common ways to utilize corporation control to prevent agency problems are:
1. Shift the power from CEO to the Boards Generally speaking, company may not want the Chief Executive Officer has too much power to control the company, because that may cause the CEO to perform for his/her own benefit instead of maximizing the interest of the shareholders. For example, in the bylaw of JP Morgan Chase &Co., they separate the position of Chairman of the Board and Chief Executive Officer, and restrict that the CEO should “subject to the control of the Board”. Such a provision can ensure that the CEO always performs the best for the value of the company. 2. Affiliate with other organization
Affiliate with other organization means bound with other companies on a specific program in order to achieve the biggest profit for both companies. In one respect, since the two companies were cosponsor, their performance would have significant impact on each other. Therefore, they would supervise each other and provide necessary support to ensure that they can maximize their profit when they were affiliated. Like the bylaw of the New York section INC. of the American chemical society, they clearly state, “The Section may be and hereby is affiliated as a cosponsor with the Eastern Analytical Symposium, Inc.” to achieve former organization’s educational object and also build up the goodwill of the latter company. (NYACS is a non-profit organization) 3. Compensate the Board members Compensation is always a good motivation to increase the board members commitment to the company. But not all the companies would like to represent their system of reward to the public. Among all the five companies’ corporation bylaws, only two of the oldest companies refer to the compensation on their bylaws. In Lorillard Tobacco Company’s bylaw, although it said that the directors should not receive any stated salary for their services as directors, but “a fixed fee and expenses of attendance may be allowed fro attendance at each meeting”. In the other hand, the compensation provision of JP Morgan seems like more generous. In the bylaw of JP Morgan Chase & Co., it also mention that the Board will be paid for attendance at any such meeting, and “Director shall be entitled to receive from the Corporation such amount per annum”. 4. Removal (Take over) Also, from the motivation perspective, removal is one motivation that is contrary to compensation. In addition, removal is also the most common method that companies usually used to ensure the officer to perform accord with standard. Therefore, the provision of removal can be found in all of the 5 companies’ bylaws. The performance standard is varying from firm to firm, the specific removal provisions of these companies are also different. But, one thing in common is all the removal may be executed with or without cause at any time by a majority vote (usually is 2/3) from the holders, at an annual meeting or a special meeting called for the purpose. IV. Summarization The purpose of bylaws is to direct the inner-workings of a corporation. In other words, the bylaws set forth the day-to-day functions of a corporation. This paper is mainly focusing on corporation control, which are utilized to reduce agency problems and increasing commitment of officers. The 4 common ways that companies usually used to enhance corporation control are (1) shift the power to the board, (2) affiliate with other organization, (3) compensate the board members, and (4) removal. Finally, Five companies’ bylaws are used as example to illustrate how these methods are being used in practice.

Reference
BYLAWS OF THE NEW YORK SECTION, INC. OF THE AMERICAN CHEMICAL SOCIETY. Effective March 1, 2012.
BYLAWS—DUPONT CIRCLE CONSERVANCY, Inc. Approved in 2009.
BY-LAWS OF JPMORGAN CHASE & CO. Effective July 15, 2008.
AMENDED AND RESTATED BY-LAWS of KRAFT FOODS INC. Effective as of May 23,2012
BY-LAWS of LORILLARD TOBACCO COMPANY. Effective 2010.

Other sources from the website: http://en.wikipedia.org/wiki/By-law#Corporate_bylaws http://business-law.freeadvice.com/business-law/corporations/corporate_by_law.htm

http://www.dupontbglad.com/ByLaws/bylaws.html
http://www.minyanville.com/special-features/articles/oldest-public-companies-america2527s-oldest-companies/9/23/2011/id/37022

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