Virtual Shareholder and Board Meetings: Important Considerations for New York 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 there will be a demand for more virtual meetings of shareholders, directors, members, and managers of entities in the days to come. This alert is intended to provide basic guidance to entities organized in New York 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”) collectively, we refer to these as “Governing Documents.”
If your Governing Documents provide for remote meetings, you should follow the procedures outlined in them. If, however, your Governing Documents do not already provide for virtual meetings, New York Statutes will fill in the gap (unless your Governing Documents prohibit such meetings) or unless modified by Executive Order.
Executive Order
Prior to March 2020, while some states (such as Delaware) generally permits companies to hold virtual-only provided that certain conditions are met, New York (following an October 2019 rule change) is one of a few states to only permit a virtual component (again subject to certain conditions) while still requiring an in-person meeting be held.
However, on March 20, 2020, Governor Cuomo signed Executive Order No. 202.8 in response to the COVID-19 heath crisis temporarily suspending certain sections of the New York Business Corporation Law effective immediately through April 17, 2020, “to the extent they require meeting of shareholders to be noticed and held in a physical location.”
Effect of the Executive Order
Such order is limited to the sections of New York’s law governing shareholder meetings. The effect of the Executive Order is that it enables New York corporations to hold annual shareholder meetings solely via remote communication, also referred to as “virtual-only” meetings. The Executive Order alleviates the concerns of many New York public companies that have been attempting to comply with New York law while protecting the health and safety of their directors, executives, employees, shareholders and other constituencies that typically attend annual meetings.
Considerations for Limited Liability Companies
New York Statutes have always authorized the use conference calls or similar communications equipment for member and manager meetings of limited liability companies if all persons participating in the meeting can hear each other. Such participation shall constitute presence in person at the meeting.1
Considerations for For-Profit Corporations
Shareholders Meetings
Prior to the Executive Order shareholder meetings must be held in person, but the corporation’s board of directors may authorize “reasonable measures” by means of electronic communication to provide shareholders not physically present an opportunity to participate, such reasonable measures include: audio webcast or other broadcast of the meeting and for voting shall include but not be limited to telephonic and internet voting.2
Based on the foregoing, if the board of directors of a for-profit corporation wishes to hold a remote shareholders’ meeting, the board of directors of the for-profit corporation should first authorize such meeting. To the extent provided in the Governing Documents, the board of directors may adopt such procedures for the meeting as they desire, but must implement 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 shareholders. In sum, New York’s law permits New York corporations to conduct a “hybrid” shareholders’ meeting – an in-person meeting attended by company representatives and shareholders that is also broadcast simultaneously to shareholders not in attendance who can log in or call in to a webcast or teleconference to attend and vote at the hybrid meeting. However, this has been modified by the recent Executive Order discussed above by eliminating any requirement that Shareholder voting be held in a physical location in the absence of board of directors’ authorization.
Directors Meetings
Unless otherwise restricted by the certificate of incorporation or the by-laws, directors meetings of for-profit corporations have always been able to hold meetings by means of conference telephone or similar communications, so long as the equipment used allows all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting.3
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1 NY LLC L § 403
2 NY Bus Corp L. § 602(b). See also NY Bus Corp L. §§ 602(a), 605(a) and 605(b).
3 NY Bus Corp L. §708(c).
