Virtual Shareholder and Board Meetings: Important Considerations for California Companies
In these unprecedented times of “shelter in place” orders, remote working, and other strategies Americans are taking to mitigate the risks associated with COVID-19, we anticipate that many organizations will decide to transition to virtual meetings of shareholders, directors, members, and managers of entities. This alert is intended to provide basic guidance to entities organized in California considering virtual meetings. For additional considerations applicable to public companies, please see our prior client alert.
General Considerations for Virtual Meetings
As our world has become increasingly technologically sophisticated, many organizations have already addressed in their organizational documents the concept of holding remote, or virtual, meetings. In that regard, you should review your bylaws (if a corporation) or operating agreement (if a limited liability company) to determine if any such procedure currently exists. If your organizational documents provide for remote meetings, you should follow the procedures outlined in them.
If your organizational documents do not contemplate virtual meetings, the applicable California default statutes will apply and will dictate the restrictions, requirements, and proper procedure for holding such meetings.
Limited Liability Companies
California law authorizes the use of electronic video screen communication or other electronic transmission for member and manager meetings of limited liability companies, to the extent such meetings are required.
For-Profit Corporations
Shareholder Meetings
Shareholder meetings may be held by means of electronic video screen communication or other electronic transmission if authorized by the corporation’s board of directors (the “Board”) and subject to certain notice and consent requirements.
As an example, the Board must implement reasonable measures for the verification of participants’ identities and establish a reasonable opportunity for individuals to participate in the meeting and vote on matters submitted to the shareholders, including an opportunity for shareholders to read or hear the proceedings of the meeting concurrently with those proceedings. If any shareholder votes or takes other action at the meeting by means of electronic transmission to the corporation or electronic video screen communication, a record of that vote or action must be maintained by the corporation.1
Director Meetings
Meetings of the Board of a for-profit corporation may be held by means of electronic video screen communication or other electronic transmission.
California law provides that unless the articles of incorporation or bylaws provide otherwise, the Board may permit a meeting to occur by means of remote communication as long as both of the following requirements are satisfied: (i) each member participating in the meeting can communicate with all of the other members concurrently, and (ii) each member is provided the means of participating in all matters before the Board, including, without limitation, the capacity to propose, or to interpose an objection to, a specific action to be taken by the corporation.2
California also provides for emergency powers that allow certain actions to be taken in an emergency in the event that a quorum of the Board of a for-profit corporation cannot readily be assembled. Thus, in the event that a quorum is unable to be achieved due to the novel coronavirus, implementing statutorily authorized emergency powers may be considered.
In light of rapidly evolving developments in our society’s ability to travel and convene, a corporation’s policies and practices surrounding shareholder and director virtual meetings and a corporation’s means of facilitating “remote communication” should be reviewed carefully to confirm compliance with any applicable California statutes.
Not-for-Profit Corporations (Nonprofit Public Benefit Corporations3, Nonprofit Mutual Benefit Corporations4, & Nonprofit Religious Corporations)5
Member Meetings (if any)
Member meetings may be held by means of electronic video screen communication or other electronic transmission if authorized by the not-for-profit corporation’s Board.
If the Board wishes to hold remote member’s meetings, the Board must implement reasonable measures for the verification of participants’ identities and establish a reasonable opportunity for individuals to participate in the meeting and vote on matters submitted to the members, including an opportunity for members to read or hear the proceedings of the meeting concurrently with those proceedings. If any member votes or takes other action at the meeting by means of electronic transmission to the corporation or electronic video screen communication, a record of that vote or action must be maintained by the corporation.
Director Meetings
Meetings of the Board of a not-for-profit corporation may be held by means of electronic video screen communication or other electronic transmission.
California law provides that unless the governance documents of a not-for-profit corporation provide otherwise, the Board may permit a meeting to occur by means of remote communication as long as both of the following requirements are satisfied: (i) each member participating in the meeting can communicate with all of the other members concurrently, and (ii) each member is provided the means of participating in all matters before the Board, including, without limitation, the capacity to propose, or to interpose an objection to, a specific action to be taken by the corporation.
California also provides for emergency powers that allow certain actions to be taken in an emergency in the event that a quorum of the Board of directors of a not-for-profit corporation cannot readily be assembled. Thus, in the event that a quorum is unable to be achieved due to the novel coronavirus, implementing statutorily authorized emergency powers may be considered.
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1 See Cal. Corp. Code, § 600(e).
2 See Cal. Corp. Code, § 307(a)(6).
3 See generally Cal. Corp. Code, §§ 5510, 5211.
4 See generally Cal. Corp. Code, §§ 7510, 7211.
5 See generally Cal. Corp. Code, §§ 9411, 9211.
