Public companies have many concerns amid the novel coronavirus pandemic – from identifying ways to continue operations and combat production and supply chain issues to ensuring compliance in spite of the ever-evolving deluge of regulatory changes and guidance that ferry them toward uncertain futures.
Though many efforts are geared toward weathering what may be tougher economic times, some are focused on practical matters in the here and now. One such issue: annual shareholder meetings.
SEC Guidance Provides Latitude to Change Nature, Schedules of Meetings
On Friday, March 13, 2020, the U.S. Securities and Exchange Commission (SEC) published guidance to help publicly traded companies and investment funds manage upcoming shareholder meeting processes amid challenges created by the coronavirus.
That includes various restrictions and Stay-at-Home orders implemented by local, state, and national governments, as well as widely accepted guidance from the CDC and other health agencies on using social distancing as the primary means to prevent transmission of COVID-19. Both have created limitations and logistical issues for shareholders who planned to attend annual meetings in person.
The new guidance, which comes after the SEC granted conditional relief from disclosure deadlines to certain issuers, provides public companies with much-needed flexibility to modify the nature and schedules of their meetings, even if they have already mailed their proxy materials.
Per the SEC, public companies impacted by COVID-19 that have already mailed and filed proxy statements can change the following aspects of their annual meetings without mailing additional materials:
Such changes are permitted if allowed under state law and the company’s organizational documents. To qualify, companies must:
- Issue an announcement of meeting changes, and files the press release as definitive additional soliciting material on EDGAR;
- Timely notify other proxy intermediaries and market participants of changes; and
- Provide clear instructions to shareholders, including how to access, participate, and vote in meetings.
Virtual or Hybrid Shareholder Meetings
Over the past several weeks, many major corporations have announced modifications that make scheduled, in-person shareholder meetings virtual or “hybrid” meetings. Though the SEC guidance permits companies to make these modifications, such changes are permitted only if allowed under:
- Applicable state law; and
- A company’s organizational documents.
Prior to recent events, a number of states did not permit virtual-only shareholder meetings, or did so with onerous conditions or in-person components. However, many states have issued executive orders or emergency legislation to permit virtual-only meetings in response to COVID-19. For example:
- New Jersey passed legislation allowing corporations to hold shareholder meetings in part or solely by means of remote communication during the state of emergency issued by the Governor, which will remain in effect until lifted.
- New York permits virtual-only shareholder meetings until April 19 under an order issued by Gov. Cuomo by suspending the physical location provision of the state’s Business Corporation Law.
In Texas, The Texas Business Organizations Code (TBOC) allows companies to hold shareholder meetings via:
- A conference telephone or similar communications equipment;
- A suitable electronic communications system, including video conferencing or the internet; or
- Any combination thereof.
Examine Your Bylaws
In addition to ensuring virtual meetings are permitted under state law (which they are if you’re in Texas), companies will also need to examine organizational documents to determine if virtual or even hybrid meetings can be permitted.
In many cases, management and / or the board of directors would have discretion in determining proper venue and format for shareholder meetings. However, the concept would be authorized in a company’s Bylaws or Operating Agreement, and will vary from business to business.
Hendershot Cowart P.C. can assist in evaluating these documents and advising companies on their approach to annual shareholder meetings amid the coronavirus pandemic.
Virtual Shareholder Meetings: A Checklist
Companies that wish to conduct virtual shareholder meetings in Texas will need to ensure compliance and best practices in a few key areas. For example, companies should:
- Ensure each participant is able to communicate with all other participants in the meeting, regardless of the means used.
- Take reasonable measures to verify each participant voting is identified, and to document any vote or action taken.
- Comply with written notice requirements under the TBOC, such as including information about the form of communication to be used, the means of accessing the communication system, and how to access the list of shareholders entitled to vote at the meeting.
- Take reasonable measures to ensure information made available on an electronic network, such as shareholder lists, isavailable only to shareholders.
- Provide shareholders with acompliant revised notice of meeting,if notices for an in-person meeting were already mailed prior to changes.
- Evaluate all practical and logistical considerations, including health risks associated in-person meetings, when determining the most appropriate course of action.
Governing Document Review & Corporate Compliance
Hendershot Cowart P.C. is available to counsel companies across Texas and beyond in matters related to litigation, employment, compliance, and corporate well-being amid COVID-19. During these unprecedented times, regulatory shakeups and new guidance arrive on a daily basis, making it critical that companies who wish to weather the storm work with experienced counsel.
Our award-winning attorneys are available to review copies of Bylaws, Operating Agreements, and other governing documents to effectively advise company leadership on virtual shareholder meetings, and assist in ensuring compliance with all relevant regulations and conditions. Call or contact us online to speak with an attorney.