PROJ02195

• Contract/PO #: 07000000090
• Contractor Name: Ditch and Reservoir Company Alliance
• Contract Type: Grant
• Water District: 0
• Loan Projects - Doc Type: Report

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BYLAWS

By Randolph W Starr, PC.

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The Colorado Revised Nonprofit Corporation Act, Section
7 -121-401 (5) defines bylaws as: "... the code or codes of
rules, other than the articles of incorporation, adopted pur-
suant to [statute] for the regulation or management of the af-
fairs of the. .. corporation irrespective of the name or names
by which such rules are designated, and includes amended
bylaws and restated bylaws."
The Colorado Business Corporation Act applicable to
profit corporations, in Section 7-102-106 (2), states: "The
bylaws of a corporation may contain any provision for man-
aging the business and regulating the affairs of the corpora-
tion that is not inconsistent with law or \vith the articles of
incorporation. "1
Bylaws are enacted by the shareholders of a mutual ir-
ligation corporation and may contain provisions about the
regulation, management, operation and conduct of corpo-
rate affairs. But the bylaws cannot violate the terms of the
mticles of incorporation, or any law that applies to the cor-
poration. The bylaws of most mutual irrigation corporations
deal with:

. Stockholders and issuance and transfer of shares of
stock;
. Meetings of stockholders, board of directors;
. Meetings of board of directors and officers
. Contracts, loans, mortgaging of property, bank ac-
counts, fiscal year; and
. Ditch andJor reservoir operations.

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Most of the subjects need to be fairly detailed, although
many ditch companies get along \vith bylaws enacted more
than 100 years ago. The sample set of bylaws included in
the handbook contains provisions needed by mutual irriga-
tion companies to deal with modern transactions. Each ditch
company needs to tailor its bylaws to its own circumstances
so operations proceed based on clear rules of conduct.
The number of members of the board of directors is tra-
ditionally an odd number to avoid tie votes. Board members
usually receive a small stipend or fee for attending a board
meeting, but ditch companies pay no salary or other benefits
to board members. The ditch company may employ some
board members. Watch out for conflicts of interest. Some-
times there is "cumulative voting"2 of the shares of stock so
that a minority number of shares can control the election of

at least a minority of the members of the board. The voting
usually, though, is based on "one share-one vote."
The board is in charge of management of the company.
The officers of the company are elected by the board of di-
rectors3 to carry out its decisions and directions. The direc-
tors must be aware of their liability for their actions and be
careful in the administration of the ditch companys affairs.
Colorado statutes establish a standard of conduct for board
members of nonprofit corporations, but since the provisions
of the nonprofit corporation statutes or the profit corpora-
tion statutes may not apply to a mutual irrigation company
under Title 7, Article 42, the legislature extended the same
protections available to those types of corporations to mutual
irrigation companies. f
Officers' jobs are set out in the bylaws, and also carry li-
ability. Questions about what those liabilities are should be
directed to legal counsel familiar with corporate representa-
tion and especially mutual irrigation companies. The author
strongly suggests that each mutual irrigation company ob-
tain general liability insurance in the maximum limits that
can be afforded and also an errors and omissions policy for
the benefit of the board and officers.
Issuing stock certificates in a mutual irrigation corpora-
tion can cause a great deal of consternation for ditch com-
pany secretaries. Up-to-date provisions in the bylaws give
guideposts to stockholders and to ditch company secretaries.
Shares may be transferred only on the books of the ditch
company, and many corporations no longer issue original
certificates because of the problems that lost stock certifi-
cates pose. Electronic registration of stock certificates and
digitally imaged certificates are preferred so that transfers are
done by the secretary and only facsimiles of the certificates
are given to the stockholders, lienholders and others.

Amendments to Bylaws
Generally the stockholders reserve the power to change
the bylaws. Some corporations allow the board of directors
to change the bylaws and then grant a right of the stock-
holders to "veto" a board-adopted bylaw. But the essence of
operations of a mutual irrigation corporation is contained
in the bylaws and the stockholders should generally be in
charge of making and amending the bylaws.
The level of approval of bylaw changes also varies from
company to company. Most bylaws require more than a ma-

Ditch Company Handbook I June 2005