Virtual Stockholder and Board Meetings: Important Considerations for Delaware 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 stockholders, directors, members, and managers of corporate entities. This alert is intended to provide basic guidance to private entities organized in Delaware 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 bylaws (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 do not already provide for virtual meetings, Delaware Statutes will apply.
Limited Liability Companies
Delaware Statutes authorize the use of conference calls or other communications equipment for member and manager meetings as long as all participants can hear each other.1
For-Profit Corporations
Stockholder Meetings
Stockholder 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 steps are taken by the corporation.
These steps include, without limitation, for the corporation (i) to implement reasonable measures to verify that each person present and permitted to vote is a stockholder (or proxy), (ii) to implement reasonable measures to provide stockholders and proxies a reasonable opportunity to participate in the meeting, and (iii) to maintain a record of voting or action by any stockholder or proxy that votes or takes other action by means of remote communication.2 Reasonable measures for verification may include the provision of control numbers to stockholders that can be input when joining the virtual meeting; reasonable measures for participation may include time set aside for Q&A.
In Delaware, on April 6, 2020, Governor John C. Carney issued an order allowing public companies that have already given notice to stockholders of a meeting in a physical location to switch to a virtual meeting and give notice through public filings and announcements rather than giving new written notice to stockholders.3 Please note that this order does not apply to public companies that have not given any notice of a meeting yet.
Director Meetings
Meetings of the Board of for-profit corporations may be held by means of remote communication.
Delaware Statutes provide that unless the certificate of incorporation or bylaws provide otherwise, the Board may permit a meeting to occur by means of remote communication as long as all participating directors may simultaneously hear each other during the meeting and participation in the meeting shall constitute presence in person at the meeting.
Delaware Statutes also provide for emergency powers and certain other 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 a catastrophic event.4 Thus, in the event that a quorum of the Board of the for-profit corporation cannot be assembled due to COVID-19 (for example), implementing statutorily authorized emergency powers may be considered.
In light of this recent development, the corporation’s policies and practices surrounding stockholder and director virtual meetings and the corporation’s means of “remote communication” should be reviewed carefully to confirm compliance with Delaware Statutes.
Not-for-Profit Corporations
Members (if any)
Member meetings may be held by means of remote communication if authorized by the not-for-profit corporation’s board of directors (the “Board”) and to the extent certain steps are taken by the not-for-profit corporation.
These steps include, without limitation, for the not-for-profit corporation (i) to implement reasonable measures to verify that each person present and permitted to vote is a Member (or proxy), (ii) to implement reasonable measures to provide Members and proxies a reasonable opportunity to participate in the meeting, and (iii) to maintain a record of voting or action by any Member or proxy that votes or takes other action by means of remote communication.5 Reasonable measures for verification may include the provision of control numbers to stockholders that can be input when joining the virtual meeting; reasonable measures for participation may include time set aside for Q&A.
Directors
Director meetings of not-for-profit corporations may be held by means of remote communication.
Delaware Statutes provide that unless the certificate of incorporation or the bylaws provide otherwise, the Board may conduct meetings through the use of conference telephone or other communications equipment by which all persons participating can simultaneously hear each other’s communications during the meeting, and participation in the meeting shall constitute presence in person at the meeting.6
Delaware Statutes also provide for emergency powers and certain other actions that may be taken in the event that a quorum of the Board of a not-for-profit cannot readily be assembled because of some catastrophic event. Thus, in the event that a quorum of the Board cannot be assembled due to COVID-19 (for example), implementing statutorily authorized emergency powers may be considered.
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1 Del. Code tit. 6, § 18-302(d),404(d).
2 Del. Code tit. 8, § 211(a)(2).
3 Governor John C. Carney, Tenth Modification of the Declaration of a State of Emergency for the State of Delaware Due to a Public Health Threat, GOVERNOR.DELAWARE.GOV (April 6, 2020), https://governor.delaware.gov/health-soe/tenth-state-of-emergency/
4 Del. Code tit. 8, § 211(a)(2).
5 Del. Code tit. 8, § 141(i).
6 See generally Del. Code tit. 8, § 110.
