State Law Requirements for Electronic Shareholder Meetings: Participation and Notice
This alert is Part Two of a series of Alerts focused on providing guidance to companies attempting to maintain compliance with state and federal law and their governing documents with respect to annual meeting and notice requirements in light of COVID-19 pandemic-related concerns.
Part One summarized guidance from the Division of Corporate Finance of the Securities and Exchange Commission, released on March 13, 2020, to assist issuers of securities in navigating their legal requirements to hold annual meetings. Part Two is intended to provide a brief analysis of the corporation law in Delaware, New York, California, and Massachusetts regarding replacing in-person shareholder meetings with virtual meetings and providing proper electronic notice to shareholders. This is not a comprehensive survey of the applicable corporation law of all fifty states or a full explanation of the corporation laws of Delaware, New York, California, and Massachusetts. A company wishing to hold virtual meetings of its shareholders should closely evaluate, and seek legal counsel with respect to, its governing documents and the governing law of its jurisdiction of incorporation.
To determine whether a company may hold a virtual meeting, the company must look to the laws of its state of incorporation and the governing documents of the company (including its Certificate or Articles of Incorporation and Bylaws).
Corporation law in Delaware, California, and Massachusetts (and pending legislation in New York) provides that shareholders and proxyholders will be deemed present in person and may vote at a shareholder meeting held solely by means of remote communication so long as the company (a) implements reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a shareholder or proxyholder; (b) implements reasonable measures to provide such shareholders and proxyholders a reasonable opportunity to participate and vote at the meeting; and (c) maintains a record of a vote or other action taken at the meeting by means of remote communication. Each state imposes varying levels of restrictions on virtual shareholder meetings, as exhibited in the state examples described below.Delaware
Companies incorporated under Delaware law may conduct all-virtual shareholder meetings or virtual/in-person hybrid meetings, and the board of directors of such a company may authorize shareholders and proxyholders to participate in a shareholder meeting by means of remote communication, subject to any guidelines and procedures the board of directors sets forth.New York
Currently, New York companies are not expressly permitted to hold virtual shareholder meetings, stating that shareholder meetings may be conducted “at such place, within or without this state, as may be fixed or under the by-laws, or if not so fixed, at the office of the corporation in this state.” However, an active bill that has passed the New York Senate, Bill S6506, would, if enacted, allow meetings to “incorporate remote participation in a physical, in-person meeting with other shareholders, or [to] be held exclusively via online platforms or other forms of remote communications.” This series of Alerts will be supplemented if Bill S6506 is enacted.California
California companies are permitted to hold shareholder meetings “at a designated place or in whole or in part by means of electronic transmission,” subject to shareholder consent that includes or has been preceded by “a clear written statement to the recipient as to:
- any right of the recipient to have the record provided or made available on paper or in nonelectronic form,
- whether the consent applies only to that transmission, to specified categories of communications, or to all communications from the corporation, and
- the procedures the recipient must use to withdraw consent.”
Therefore, a California company must not only possess the email addresses of its shareholders but also secure shareholders’ consent to conduct all- or partially virtual shareholder meetings. Any request for consent to conduct virtual meetings should contain a statement informing shareholders that if they do not furnish such consent, the meeting will be held at a physical location.
California companies that have already obtained consent from all of their respective shareholders to hold virtual meetings are well-positioned to proceed on that basis. However, a company with a large number of shareholders may have a difficult time obtaining such consent in short order and should be prepared with contingencies to hold a meeting at a physical location or defer its annual meeting in the event that it is unable to obtain the requisite shareholder consents to meeting on a virtual basis.Massachusetts
Private companies incorporated under Massachusetts law may conduct all-virtual shareholder meetings. Unless the articles of incorporation or bylaws of the private company provide otherwise, any shareholder meeting may be conducted solely by means of remote communication, subject to the authorization of, and guidelines and procedures adopted by, the board of directors of such company.
Notice of Annual Meetings
In Delaware, any notice to a shareholder may be given by electronic transmission directed to the shareholder’s email address as it appears on company records. Electronic notice is deemed given when directed to such shareholder’s email address unless the shareholder “has notified the corporation in writing or by electronic transmission of an objection to receiving notice by electronic mail or such notice is prohibited by subsection (e) of this section.” Section 232(e) states that notice may not be given electronically from and after the time that (a) the company is unable to deliver by electronic transmission two (2) consecutive notices to the shareholder, or (b) the secretary, any assistant secretary, the transfer agent, or any other person responsible for the giving of the notice learns of the inability to deliver the notice, provided that the inadvertent failure to discover such inability does not invalidate any meeting or other action.
A notice by electronic transmission must include the following:
- A prominent legend that the communication is an important notice regarding the company;
- the place, if any, date, and hour of the meeting;
- the means of remote communications, if any, by which shareholders and proxyholders may be deemed to be present in person and vote at such meeting;
- the record date for determining the shareholders entitled to vote at the meeting (if different from the record date for determining shareholders entitled to notice of the meeting); and
- the purpose(s) for which the meeting is called (in the case of a special meeting).
New York companies are permitted to send notice of shareholder meetings via email, the law simply stating simply that “[n]otice of any meeting of shareholders may be written or electronic.” Electronically transmitted notice is given when directed to the shareholder's email address (as provided by the shareholder to the company secretary) or as otherwise directed by the shareholder.California
California companies are permitted to provide notice by electronic transmission provided that the requisite consent to receiving notice by electronic transmission has been obtained from a recipient (as further discussed below). Notice by electronic transmission is deemed to have been given at the time the notice was sent by electronic transmission by the company. However, similar to Delaware, notices may not be given by electronic transmission by the company after either (a) the company is unable to deliver by electronic transmission two (2) consecutive notices to the shareholder, or (b) the secretary, any assistant secretary, the transfer agent, or any other person responsible for the giving of the notice learns of the inability to deliver the notice by such means.
Under the California Corporate Code, “electronic transmission” means a communication by a company to a recipient who has provided an unrevoked consent to the use of electronic transmission for communications. Moreover, consent to electronic transmission of notice is governed by the same “clear written statement” provisions governing consent to holding virtual shareholder meetings, as described above. Communications delivered by “posting on an electronic message board or network” that the company has designated for such communications also are considered an “electronic transmission” under the California Corporate Code and deemed validly delivered upon the later of the posting or delivery of a separate notice informing the recipient of the posting.Massachusetts
Massachusetts law does not specifically provide for electronic notice to shareholders, only stating that a “written notice” of the date, time, and location of a shareholder meeting must be given to shareholders between seven (7) and sixty (60) days before the meeting date.
When determining whether to hold a virtual meeting of the shareholders, companies should begin by ensuring that they are not prohibited from doing so under their respective laws of incorporation and governing documents. If a company is prohibited only by its bylaws and is nonetheless required to hold a meeting during the COVID-19 pandemic, the board of directors should consult applicable law and consider revising the company’s bylaws to allow for virtual meetings in accordance therewith.
Assuming that a company’s laws of incorporation and governing documents provide a framework for proceeding with a virtual meeting, such company’s board of directors (under the advice of legal counsel) should examine applicable state law pertaining to notice and diligently tend to provide adequate notice as required under law and in accordance with its governing documents. There are many virtual platforms designed specifically for purposes of hosting virtual shareholder meetings that will help the company ensure compliance with record requirements under its governing documents and applicable law.
As noted in Part One, companies that are unsure whether they may hold a virtual meeting under applicable state law or their governing documents, or are unsure how to proceed with meeting applicable legal and regulatory requirements regarding issuing a notice of such meetings, should consult their corporate counsel for definitive guidance. In opting to conduct shareholder meetings virtually, companies can maintain aspects of operational normalcy and fulfill legal obligations to provide annual or special meetings of the shareholders, while maintaining safe business practices for the duration of the COVID-19 pandemic and in response to other similar circumstances. 8 Del. C. § 211(a)(2).  NY Bus. Corp. L. § 602(a).  Memorandum to Bill S6506.  Cal Corp. Code § 600(a).  Cal Corp. Code § 20.  Mass. Gen. Laws Ann. Ch. 156D Section 7.08.  8 Del. C. § 232(a).  8 Del. C. § 232.  N.Y. Bus. Corp. L. § 605 (2015).  Cal. Corp. C. § 601(b).  Cal. Corp. C. § 20.  Mass. Gen. Laws Ann. Ch. 156D § 7.05(a).