Virtual Shareholder and Board Meetings: Important Considerations for Michigan Companies
In these unprecedented times of “shelter in home” 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 Michigan 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 dependent, many organizations have already addressed the concept of remote meetings in their organizational documents. In that regard, you should review your by-laws (if a corporation) or operating agreement (if a limited liability company (“LLC”)). If your organizational documents provide for remote meetings, you should follow the procedures outlined in them.
If your organizational documents/operating agreement do not already provide for virtual meetings, Michigan Statutes will apply.
Limited Liability Companies
Virtual meetings for LLCs may not be an issue since they are not required to hold meetings under Michigan Statutes. If a Michigan LLC does decide to hold meetings by means of remote communications, it is subject to the requirements set out for for-profit corporations under Michigan Statutes.1 These requirements should be considered carefully before using remote communications to ensure compliance with Michigan Statutes and the validity of actions taken by such means.
For-Profit Corporations
Shareholder Meetings
Shareholder meetings may be held by means of remote communication if authorized by the corporation’s Board of Directors (the “Board”) and to the extent certain requirements are met by the corporation.
These requirements include, without limitation, for the corporation to: (1) advise participants of the means of remote communication in the notice provided for the meeting, (2) implement reasonable measures to verify that each person considered present and permitted to vote at the meeting by means of remote communication is a shareholder or proxy holder, (3) implement reasonable measures to provide each shareholder and proxy holder a reasonable opportunity to participate in the meeting and to vote on matters submitted to the shareholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with the proceedings, and (4) ensure a record of any vote or other shareholder action is maintained by the corporation.2
Director Meetings
Meetings of the Board of for-profit corporations may be held by means of remote communications.
Michigan Statutes provide that unless otherwise restricted by the articles of incorporation or by-laws, a member of the Board or of a committee designated by the Board may participate in a meeting by means of conference telephone or other means of remote communication through which all persons participating in the meeting can communicate with the other participants. Participation in a meeting in this manner constitutes presence in person at the meeting.3
Unlike some other states, the Michigan Statutes do not provide for emergency powers authorizing certain actions that may be taken in the event that a quorum of the Board of a for-profit corporation cannot readily be assembled because of some catastrophic event
Thus, it is important to implement contingency plans and authorizations for emergencies via the corporation’s Governing Documents. This may include provisions in the by-laws such as having the Executive Committee or a smaller portion of the Board act in the capacity of the Board in the event of emergencies. What constitutes an emergency should be clearly defined, and it is advisable to limit the powers of this emergency body. These limits may include barring the emergency body from taking certain actions including amending the fundamental nature of the business, its financials, as well as its capitalization and ownership
In light of the recent development, the corporation’s policies and practices surrounding shareholder and director virtual meetings, and the corporation’s means of “remote communication,” should be reviewed carefully to confirm compliance with Michigan Statutes.
Not-for-Profit Corporations
Members (if any)
Michigan Statutes pertaining to remote not-for-profit member participation contain similar requirements to those for remote shareholder participation pertaining to for-profit corporations. Michigan not-for-profit Statutes are not identical to their for-profit counterparts, however.
Not-for-profit corporations are required, like for-profit entities, to ensure member identity, participation, and recordkeeping. Participants must also be advised of the means of remote communication. The board of a Michigan not-for-profit may conduct a meeting of the shareholders solely by means of remote communication. Similar to Michigan for-profit corporations, participation in a meeting by electronic or telephonic means constitutes presence in person at the meeting for not-for-profit members.
A key difference is that not-for-profit entities are not required to have affirmative Board authorization for remote shareholder participation.4
Based on the foregoing, the Board of a nonprofit corporation may hold a remote members’ meeting without previously or formally authorizing use of remote communications. In other words, to the extent provided in the Governing Documents the Board may adopt such procedures for the meeting as they desire. However, the Board must still ensure that it has properly implemented reasonable measures for the verification of participants’ identities and a reasonable opportunity for participants to participate in the meeting and vote on matters submitted to the members. Careful consideration should be given, therefore, to the way in which remote meetings are held, if any, to ensure the validity of actions taken at such meetings.
Directors
Meetings of the Board of not-for-profit corporations may be held by means of remote communications. Michigan for-profit and not-for-profit Statutes are identically drafted in this respect.
Michigan Statutes provide that unless otherwise restricted by the articles of incorporation or by-laws, a member of the Board or of a committee designated by the Board may participate in a meeting by means of conference telephone or other means of remote communication through which all persons participating in the meeting can communicate with the other participants. Participation in a meeting in this manner constitutes presence in person at the meeting.5
Unlike some other states, the Michigan Statutes do not provide for emergency powers authorizing certain actions that may be taken in the event that a quorum of the Board of a for-profit corporation cannot readily be assembled because of some catastrophic event.
Thus, it is critically important to implement contingency plans and authorizations for emergencies via the corporation’s Governing Documents. This may include adding provisions in the by-laws such and authorizing select groups to act when an emergency occurs. What constitutes an emergency should be clearly defined, and it is advisable to limit the powers of this emergency body. These limits may include barring the emergency body from taking certain actions related to the fundamental nature of the business, its financials, as well as its capitalization and ownership.
In light of the recent development, the corporation’s policies and practices surrounding shareholder and director virtual meetings, and the corporation’s means of “remote communication,” should be reviewed carefully to confirm compliance with Michigan Statutes.
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1 See MCL 450.4210.
2 See MCL 450.1405.
3 See MCL 450.1521.
4 See MCL 450.2405.
5 See MCL 450.2521.
