Bylaws from the Crypt: Why Outdated Governance Could Haunt Your Business

In the spirit of Halloween, it’s time to ask: Are your company governance documents a ticking time bomb buried beneath the boardroom floor? When was the last time you updated your bylaws or governance documents? Many companies don’t think about updating their governance documents on a semi-regular basis, as they are not often used in everyday operations. But beware! What you don’t update can come back to haunt you.

Your governance documents, bylaws, regulations, operating agreements, or declarations are the internal rulebook for how your company governs itself, outlining procedures for everything from board elections, how and when a company may make a distribution, what to do in the event of a board member resigning, to shareholder meetings. But as laws evolve, industries shift, and company structures and operations become more complex, static bylaws can become burdensome and even a legal liability.

Take, for example, the company that still requires all board votes to happen in person, even after remote meetings became the norm. Or that don’t account for modern concepts like digital notices, hybrid shareholder meetings, or recent changes in state business statutes. These may seem like minor oversights, but in practice, they can summon real legal and operational nightmares. For example, in 2022, Ohio revised the Ohio Revised Code with the Revised Limited Liability Act. The Revised Limited Liability Act was aimed at providing greater flexibility to companies, so if you have not reviewed your operating agreement in the last three years, you could be handcuffing your governance unknowingly.

Furthermore, you may expose directors and officers to personal liability if it leads to breaches of fiduciary duties or procedural missteps. Especially now, because, if organized in Ohio, the Revised Limited Liability Act allows companies to limit or eliminate the fiduciary duties of their members, managers, or officers under its operating agreement. Under the Old Act, an LLC could limit, but could not eliminate, these fiduciary duties.^[1]

Looking to sell your company in the near future, or seeking out additional investors? Investors performing due diligence may see stale governance as a red flag and a sign that a company is asleep at the wheel.

Are you the victim of a ghost clause haunting your operations? Outdated or inapplicable provisions can create confusion, procedural errors, or even invalidate company actions. Worse still are “zombie procedures” or outdated governance mechanisms that technically still exist, even if no one follows them anymore. In a legal dispute, a court could enforce these long-dead rules, undermining decisions the company thought were sound.^[2]

A thorough governance review, ideally every few years or after major legal changes, is a must. Update language to reflect current law, clarify ambiguous provisions, and remove anything no longer relevant. Remember, your governance documents aren’t just dusty documents in a company coffin; they’re a living framework for your company’s future. Keeping them updated ensures your governance is strong, your procedures are defensible, and your leadership isn’t caught off guard when the unexpected rattles the boardroom door.

This Halloween season, don’t wait for a crisis to dig up those governance documents. Now is the time to make sure they aren’t six feet under.

[1] Ohio Rewrites the Law on Limited Liability Companies

[2] The Operating Agreement Controls, Unless Public Policy Says Otherwise | Farrell Fritz, P.C. - JDSupra