For NYS corporations, authority to hold virtual annual meetings has been extended until December 31, 2021, according to Senate Bill 8412, which was signed by Governor Cuomo on June 17, 2020.
The NY Business Corporation Law (BCL) regulates the internal affairs of corporations incorporated under NYS law, including how shareholder meetings are held. Before COVID-19, the BCL and its predecessor NYS corporation statutes required a NYS corporation to invite shareholders to an in-person meeting at least once a year to elect directors. Case law requires the corporation, at the annual meeting, to provide information to its shareholders, allow shareholders to ask questions, and allow shareholders to comment and complain. These shareholder rights are limited by the principles that the meeting must be allowed to conduct its business, such as voting for directors, and that the meeting must be conducted with a view toward being fair to all shareholders, such as by limiting the time and subject matter for each shareholder asking a question or making a comment.
If a corporation attempted to hold an annual shareholders’ meeting without allowing shareholders to attend in person, there would be a legal question regarding the extent to which actions purportedly taken at the meeting were valid.
On March 20, , Governor Cuomo issued Executive Officer No. 202.8, which postponed the requirement to have an in-person shareholders’ meeting at a physical location until April 19, allowing virtual meetings in the meantime. Executive Orders 202.14 and 202.18 further postponed the requirement of physical shareholder meetings through May 15. After May 15, however, there was no legal relief from the need to have an in-person annual meeting.
Senate Bill 8412 addressed this problem. Relief was added to paragraph (a) of section 602 of the NY BCL, which, in its amended form, states:
a) “Meetings of shareholders may be held at such place, within or without this state, as may be fixed by or under the by-laws, or if not so fixed, as determined by the board of directors. For the duration of the state disaster emergency declared by Executive Order 202 that began on March 7, 2020, if, pursuant to this paragraph or the by-laws of the corporation, the board of directors is authorized to determine the place of a meeting of shareholders, the board of directors may, in its sole discretion, determine that the meeting be held solely by means of electronic communication, the platform/service of which shall be the place of the meeting for purpose of this article.”
The bolded language was added by the amendment. Paragraph (a) authorizes the board of directors to “determine that the meeting be held solely by means of electronic communication[.]”
A virtual annual meeting is subject to the same fiduciary principles as an in-person meeting. Shareholders must have an opportunity to ask questions of management and to make complaints, subject to the limitations that the business of the meeting goes forward and that the opportunity to ask questions and make complaints is fair to all shareholders. Due to amendments to the BCL adopted in 2019, a NYS corporation also has the option to combine the virtual presence of shareholders with an in-person shareholder meeting.
Senate Bill 8412 also allows virtual meetings for not-for-profit corporation members and religious corporation trustees. By its terms, it states it “shall expire and be deemed repealed December 31, 2021,” which presumably means the last effective date of Senate Bill 8412 will be December 30, 2021. We all hope our current need for social distancing will have ended by then.
If you have any questions regarding the content of this alert, please contact Jim Canfield, Corporate Practice Area co-chair, at jcanfield@barclaydamon.com; Chris Bonner, special counsel, at cbonner@barclaydamon.com; or another member of the Corporate Practice Area.