Importance of Updating Bylaws for Ownership or Board Changes

Business owners should understand the crucial requirements of updating Corporate bylaws and LLC Articles of Organization for purposes such as reflecting current company operations, preventing potential future conflicts of interest and ensuring legal compliance. Failure to legally provide these updates can result in operational inefficiencies, legal issues, and even loss of tax-exempt status for non-profits.

Filing revisions to reflect changes to ownership or changes to the Board of Directors or Board of Managers require a thorough analysis of existing bylaws by a corporate attorney to effectuate a company’s intent, without creating confusion or creating unintended consequences.  

Avoiding Ultra Vires Acts

Generally, an “ultra vires” act refers to a corporate action that is commenced on behalf of a company without the legal authority to do so. This typically means actions that fall outside the scope of a business entity’s legal powers as defined in bylaws, LLC operating agreements or applicable state law. Issues could arise in situations, such as where contracts are entered into on behalf of company officials who are improperly designated through a company’s bylaws, due to failure to revise such bylaws, where such persons could potentially lack authority to contract on behalf of the company. This could result in the invalidation and rescission of contracts, which can potentially have devasting results for your clients.

Ensuring Valid Board Actions and Voting

Like ultra vires acts, board votes and actions taken prior to revisions of ownership or revisions of board make up could result in the legal invalidation of board votes and actions which could also potentially have devastating results for your clients.

Help in Due Diligence for Financing, Sale, Partnerships, Collaboration

Having the true accurate Board makeup and ownership percentages reflected per company bylaws and state law can prevent potential red flags when your client’s organization is being screened for financing or potential opportunities. Prevent such situations through proper amendments performed to and through company bylaws, LLC Articles of Organization and where necessary public company filings, such as Articles of Organization and Articles of Incorporation.

These are just a few reasons why appropriate and timely updates should be made to Company Bylaws and other Company legal documentation.

Do you have a client that needs a contract reviewed, a contract updated, or guidance on a corporate legal matter? We’re here to help. Quick turnarounds and no surprises.

Contact Biazzo Law today at (703) 297-5777 or alyssa@biazzolaw.com to schedule a consultation today. www.biazzolaw.com 

** Information in this newsletter email should not be considered legal advice, nor does it form an attorney-client relationship

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