Corporate, Securities & Tax

Annual Shareholder Meetings

As Virginia corporations navigate this year’s annual shareholder meeting season, many have come face-to-face with the COVID-19 pandemic. The social distancing requirements related to the pandemic will often deter—or prevent—in-person shareholder meetings. At the same time, there is disinformation circulating regarding the availability of virtual shareholder meetings under Virginia law. Here are the key points:

Governor Northam’s Executive Order #53 of March 23, 2020, expressly bans all public and private in-person gatherings of 10 or more individuals. This applies to corporate shareholder meetings. Virginia Code §13.1-660.2 (and Va. Code §13.1-844.2 in the case of nonstock (such as not-for-profit corporations and property owner association corporations) expressly permits annual shareholder and member meetings to either (i) include an option for shareholder or member attendance and participation via remote means, or (ii) be conducted solely by means of remote communication unless the articles or bylaws expressly require that the meeting be held at a place. If the bylaws authorize the board of directors to determine the place of a shareholder or meeting, Virginia corporations may cause a shareholder or member meeting to be held as a virtual meeting.

If a Virginia corporation has already noticed an in-person meeting, there are two “safe” methods to convert an in-person meeting to a virtual meeting: (1) provide notice informing shareholders or members that the in-person meeting will be changed to a virtual meeting as the corporation intends to convene (with fewer than 10 attendees) and immediately adjourn the meeting to the virtual format; or (2) provide an amended notice changing the meeting to a virtual meeting.  Both of these methods satisfy Virginia law, although if the time period between the date of the notice and the scheduled meeting date is less than the minimum required by law or under the articles or bylaws, option (1) must be used unless the amended notice postpones the meeting date to a date that satisfies applicable minimum notice requirements. Although it requires a brief convening of the meeting and immediate adjournment, option (1) avoids the expense of a mailing.

Virtual or Remote Participation Shareholder Meetings Under Virginia Law.

Under both the Virginia Stock Corporation Act (VSCA) and the Virginia Nonstock Corporation Act (VNCA), a Virginia corporation’s board of directors may determine where and how shareholder meetings are held, unless the articles or bylaws provide otherwise (few governing documents provide otherwise). If the board of directors is authorized to determine the place of a meeting of the shareholders or members, the board may determine that the meeting will not be held at any place, but instead will be held solely by means of remote communication. Stated otherwise, absent an unusual provision in the articles or bylaws of a Virginia corporation, its board of directors has the power to determine that a shareholder meeting be a virtual meeting.

Conduct of Virtual Meetings

Under Virginia law, participation as a shareholder or member by means of remote communication shall be subject to such guidelines and procedures as the board of directors adopts, and shareholders or members participating in a meeting by means of remote communication are deemed present and may vote at such a meeting if the corporation has implemented reasonable measures to:

• verify that each person participating remotely as a shareholder or member is a shareholder or member or the proper holder of such a person’s proxy; and
• provide such shareholders or members a reasonable opportunity to participate in the meeting and to vote on matters submitted to the shareholders or members, including an opportunity to read or hear the proceedings of the meeting, substantially concurrently with such proceedings.

Commonly used virtual meeting software typically satisfies those requirements. If you need assistance in developing guidelines or procedures for the conduct of a virtual meeting or preparing notices of such a meeting, please feel free to contact us.

Public corporations are subject to special SEC guidance and requirements not addressed in the above summary. Please contact us if you need assistance in compliance with those requirements.

Meetings of the Board of Directors

Virginia Code Sections 13.1-684 and 13.12-864 also permits the board of directors of both Virginia stock corporations and Virginia nonstock corporations to conduct meetings and business via virtual means unless the articles of incorporation or bylaws provide otherwise. In the case of director meetings, the only requirement under Virginia law is that the directors utilize a means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting.

This alert was written by Robert Webb, Gene Schleppenbach and James Schwarz, lawyers in the Tysons Corner office at Miles & Stockbridge.

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