Until 2020, planning and conducting annual shareholder and director meetings were fairly straightforward affairs for corporations. Now, with ongoing governmental regulations, “social distancing,” and health and safety concerns arising from the spread of COVID-19, the management of small and medium sized privately held corporations would be wise to consider how they plan and conduct their annual meetings in 2021 and perhaps in the future. In doing so, they will be following in the footsteps of the vast majority of publicly traded companies that moved swiftly in 2020 to organize meetings virtually, or hold hybrid physical meetings with the option to participate remotely.
Holding annual shareholder and director meetings is an important component in observing corporate formalities, and, along with other acts, helps preserve the limited liability for the shareholders, and ratify and approve actions that have been taken by management. Such meetings also allow stakeholders to have a voice in company decision making. As a general rule, almost all corporations with a fiscal year ending in December typically hold their annual meetings in the first or second quarters of the following year. So, discussions about these meetings and the impacts of COVID-19 on physical participation should be happening now.
For “closely held” corporations, with one or two shareholders who may act simultaneously as directors, these meetings are typically held on a more informal scale at the corporate offices, or sometimes even handled without a formal meeting, by unanimous written consent. Standard procedures may not need to change much for these companies. However, in larger privately held for-profit corporations with increased numbers of shareholders and sizeable boards, shifting to a virtual or hybrid meeting format using online and remote technology tools such as Zoom, Microsoft Teams, or Skype will help preserve these important governance proceedings as well address COVID-19 concerns. These issues are also relevant and should be considered by non-profits corporations and charities who hold annual meetings because of larger board and stake-holder structures.
If you are a shareholder, director or an officer of an impacted corporation which has not yet considered these issues, proactively advocate review of the legal and practical issues affecting these decisions. First, check your state’s statutory and legal authority for holding remote or hybrid meetings. Also review your corporation’s Bylaws to determine whether remote participation in meetings is permitted for both shareholders and directors. It may be necessary to amend the Bylaws, which will require additional important actions.
Most states permit hybrid meetings, and many allow virtual only meetings. For example, Delaware’s corporate statute allows meetings to be held solely by means of remote communication. Pennsylvania, Ohio and West Virginia corporate statutes do provide for such meetings via the Internet or electronic means, including hybrid forms, where the attendees can hear each other, vote on matters at issue and have dialogue among each other. But it would be advisable to review your state’s specific rules for the conduct of both shareholder and director meetings with the corporation’s legal counsel.
For example, Pennsylvania Business Corporation Law Section 1704 (a) states as to shareholder meetings, that: Unless otherwise provided in or pursuant to the bylaws, all meetings of the shareholders shall be held at the executive office of the corporation wherever situated. If a meeting of the shareholders is held by means of the Internet or other electronic communications technology in a fashion pursuant to which the shareholders have the opportunity to read or hear the proceedings substantially concurrently with their occurrence, vote on matters submitted to the shareholders and pose questions to the directors, the meeting need not be held at a particular geographic location.
West Virginia Business Corporation Act Section 31D-7-708 uses slightly different language about conduct of shareholder meetings, stating: If the articles of incorporation or bylaws authorize the use of electronic communication for shareholders' meetings, any or all of the shareholders may participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all shareholders may simultaneously hear each other during the meeting.
Again, confirming the availability of such meetings for both shareholders and directors is important. Once it has been determined that virtual or hybrid meetings can be legally held, address the important practical details to ensure that the meetings can be held effectively.
Work with competent IT professionals to determine best practices, and which remote technology tools would be most effective for various aspects of the meeting, including roll call, review of documents and presentations, controlling question and answer periods, confidential voting, and recording of the meeting for purposes of drafting minutes. If the officers who will run the meeting are not adept enough to simultaneously handle the electronic controls while running the meeting, another individual or even a third party vendor might need to be enlisted. Determine whether a telephone conference line will also need to be set up as a back-up for communications.
It would also be wise to plan to call the meetings with sufficient notice so that participants feel adequately prepared. When sending the official Notices of the meetings and agendas, include detailed but simple instructions about which technology will be used, the meeting hyperlink, the meeting Id and password, and how the meeting will be conducted in the remote and electronic format. Including guidelines for online etiquette and sending hard copies of presentations and documents that will be reviewed at the meeting may also be advisable. Finally, requesting identification of proxies in advance to review, approve and facilitate participation would be prudent.
Each corporation will have unique issues to consider. Preparing now will ensure compliance with fiduciary duties and provide continuity of good corporate governance.
While everyone looks forward to the day when COVID-19 will be under control and life can return to normal, wise management teams will consider the safety of the company’s shareholders, directors and employees when planning annual shareholder and director meetings. As always, Bowles Rice attorneys stand ready to advise corporate clients on the legal and practical aspects of corporate meetings and all aspects of governance.
About the Author
John F. Nobbs is an attorney in the Southpointe, Pennsylvania office of Bowles Rice. He concentrates his practice on business, corporate and real estate law. His business and corporate experience includes entity formation, corporate governance, mergers and acquisitions, and leasing and financing. John also assists clients in the formation of non-profit entities.
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