There are legal issues in delaying an annual meeting and, as noted, there are legal requirements to conduct a virtual annual meeting.
It may be time for your company to reconsider your usual plans for the annual meeting. We don’t know how long the COVID-19 situation may last or how severe it may get, but with some careful advance planning, you may be able to proceed without putting you or your shareholders at risk.
On March 13, the SEC staff issued their “Staff Guidance for Conducting Annual Meetings in Light of COVID-19 Concerns.” The staff noted that some issuers are considering delaying their annual meetings. They encouraged those issuers to promptly notify shareholders of any proposed delays, also noting that issuers must comply with state law and any applicable securities exchange requirements. Clearly, it may make sense to consider delaying your annual meeting, especially if you anticipate (or want) a large turnout.
The SEC staff also noted that some issuers are contemplating conducting their annual meetings through the internet or other electronic means in lieu of in-person meetings. The staff deferred to state law to determine the legality of conducting a “virtual” annual meeting and emphasized the need to disclose clear directions as to the logistical details for shareholder participation.
Does it make sense to consider a virtual meeting? For California corporations, the answer is not that clear because of consent requirements. But in light of recent developments, it may be prudent to consider this option to allow for shareholder participation.
California law authorizes “electronic” shareholder meetings “in whole or in part” (Corp. Code Section 600(e)), which means it is permissible to conduct a virtual annual meeting even if not everyone participates via “electronic transmission.” But if there is not unanimous consent for the virtual annual meeting, the law requires that there also be a physical location for the meeting (Corp. Code 600(e)). The underlying requirement is that, to participate electronically, the shareholder must have been given proper notice of the right to participate by electronic transmission and the shareholder must have given his or her consent. Corporations Code Section 20 details the requirements for consent, including the requirement that, if requested, the shareholder must be given a paper or other nonelectronic record of the meeting.
Delaware law allows a corporation to hold a virtual meeting if the certificate of incorporation or bylaws allow the board of directors to determine the place of a meeting of shareholders. Delaware law requires virtual meetings to satisfy certain conditions, including that stockholders and proxyholders have a reasonable opportunity to participate in the virtual meeting and to vote on matters. Other states also permit virtual meetings. There are legal issues in delaying an annual meeting and, as noted, there are legal requirements to conduct a virtual annual meeting. If delay is not an option and if there is time to make the logistical arrangements, we believe that making the effort to have a virtual annual meeting will be greatly appreciated by shareholders and employees alike.
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Attorneys in our Corporate Practice Group are equipped to assist companies in consideration and potential implementation of a plan to hold virtual annual meetings.
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