Bylaw Compliance Is Crucial for a Board's Legal and Operational Success

Bylaws serve as more than just a dusty legal document – they're the essential roadmap that guides every significant decision a board makes. When you stray from these guidelines, even inadvertently, the consequences can range from minor inconveniences to costly legal battles that can strip away your board’s decision-making protections.

FOLLOWING THE RULES. Unlike proprietary leases or house rules that govern resident behavior, bylaws dictate how the corporation itself operates. They specify everything from the timing and notification requirements for annual meetings to the roles of officers and voting procedures. These documents outline qualifications for directors and establish protocols for budget management. While they may seem straightforward, even seemingly simple tasks like vote counting can become complex, especially in cases involving cumulative voting.

RISKS OF FLOUTING BYLAWS. Failing to follow bylaw requirements, even inadvertently, can have repercussions. At the minor end, improper meeting notices might require rescheduling, creating inconvenience and modest expenses. However, more serious infractions can lead to court-invalidated elections or overturned policy decisions. In one notable case, Cohan versus Board of Directors of 700 Short Road Waters Edge, the court not only reversed a board's fee assessment but also required the board to pay the shareholder's substantial legal fees. Perhaps most critically, failing to follow bylaws can strip boards of their business judgment rule protection – a vital shield that typically allows courts to defer to board decisions on most matters.

BOARD PROTECTIONS. Boards can safeguard themselves through three key strategies. First, understand and maintain a working knowledge of your bylaw’s core subject matter. Second, consult your attorney when making complex decisions. Finally, while bylaws generally don't require frequent updates, there may be times when they need revisions. Boards generally have the flexibility to amend bylaws in response to new challenges without obtaining shareholder approval. Common areas for updates might include adjusting qualifications for board members or refining meeting procedures. In most cases, boards should prioritize updating house rules, as these have a more immediate impact on residents' daily lives.