Zoom Shareholder Meetings?
Many of us probably have a bit of Zoom fatigue. At least I do, even when there are no Zoom bombs and everyone knows how to mute/unmute themselves. But with the year end approaching, we recommend that annual shareholder meetings be held via Zoom or other electronic means.
Such virtual meetings must meet certain statutory requirements, some of which were simplified by an executive order issued last month by Governor Newsom. This Law Bulletin discusses the requirements for California corporations, though Delaware corporations have similar requirements. Instructions on how to mute/unmute are not included.
The initial step is to determine whether the corporation’s bylaws or articles prohibit such virtual meetings. Once those organizational documents have been reviewed (and amended if necessary), the other legal requirements can be addressed.
The next steps are based on sections 20, 21, 600(a), 600(e) and 601 of the California Corporations Code (the “Code”), some of which were suspended by Executive Order N-80-20, para. 3 issued by Governor Newsom on September 23, 2020 (the “Order”). These next steps are listed below.
- Board Action. The board authorizes such a meeting, consistent with Code section 600(a). The board can also adopt guidelines and procedures to be used during such meeting. These board decisions should be memorialized by a formal resolution.
- Opportunity to Participate. The corporation implements “reasonable measures to provide shareholders a reasonable opportunity to participate,” consistent with Code section 600(e). This requirement was clarified by the Order, which provided that “the corporation shall afford a “reasonable opportunity to participate in the meeting” under Corporations Code section 600, subd. (e), by:
- Not imposing unreasonable obligations on shareholders seeking to participate in the shareholder meeting; and
- Providing shareholders, as closely as reasonably possible, an opportunity to participate equivalent to the ability of in-person attendees at the corporation’s last in-person meeting, including any ability to vote, ask questions, be heard by other shareholders, or advance proposals. In addition, if such a meeting considers any significant business transaction, controversial proposal, counter-solicitation, or other matter of a sort not considered at the last in-person meeting, the corporation shall provide as closely as reasonably possible an equivalent ability to participate as in-person attendees at the last in-person meeting to consider such a matter.”
- Maintain Record. The corporation maintains a record of any vote or action taken at such meeting, consistent with Code section 600(e).
- Notice of Meeting. The notice of shareholder meeting must include the “means of electronic transmission” for the meeting, consistent with Code section 601. (As discussed below, the Order suspended the need for shareholder consent to a virtual meeting but not the need for shareholder consent to receive notices by email.)
If the Order was not in effect, the corporation would also need to request and obtain shareholder consent to such a meeting. These requirements are often the most difficult to meet. The request would need to meet these requirements, consistent with Code sections 20 and 600(e), respectively:
- “[T]he consent to the transmission has been preceded by or includes a clear written statement to the recipient as to (a) any right of the recipient to have the record provided or made available on paper or in nonelectronic form, (b) whether the consent applies only to that transmission, to specified categories of communications, or to all communications from the corporation, and (c) the procedures the recipient must use to withdraw consent.”
- “Any request by a corporation to a shareholder pursuant to clause (b) of Section 20 for consent to conduct a meeting of shareholders by electronic transmission by and to the corporation shall include a notice that, absent consent of the shareholder pursuant to clause (b) of Section 20, the meeting shall be held at a physical location in accordance with subdivision (a).”
The Order facilitates virtual meetings by allowing a corporation to skip both the logistics of sending the request that meets these requirements, as well as the sometimes bigger challenge of obtaining each shareholder’s consent. As mentioned above, the Order does not change the requirement to request and obtain shareholder consent for other electronic transmissions (like notice of meetings), so the logistics and challenges described above remain for other matters. Now might be a good opportunity to address those additional requirements to more fully facilitate electronic communication with your shareholders beyond the annual meeting. Regardless, now is the time to take steps to facilitate virtual annual meetings. Zoom fatigue notwithstanding.
Spaulding McCullough & Tansil LLP
Corporate Team, Business Law Group