Has Your Business Considered Holding a Virtual Shareholder Meeting?

The Benefits and Risks of a Virtual Shareholder Meeting

Everything is moving to the Internet, but should that trend include your company’s annual shareholder meeting? While once met with significant resistance, virtual annual shareholder meetings are becoming more commonplace. Intel, JetBlue Airways, and Charles Schwab are just a few companies that have embraced the virtual movement.

There are generally two types of virtual shareholder meetings. In a true virtual meeting, the meeting among shareholders is held exclusively via the Internet. In the hybrid form, some shareholders participate remotely and communicate with others present at a physical meeting. Before taking the leap online, companies should understand the benefits and risks of virtual shareholder meetings, as well as the restrictions under each state’s corporate laws.

Benefits and Risks of Virtual Shareholder Meetings

One of the primary benefits of holding a shareholder meeting via the Internet is convenience. Shareholders do not need to travel to a central location and may attend the meeting from the comfort of their own homes or offices. The ease of attending can also boost participation. For companies, the cost of a virtual meeting is generally significantly less than a physical meeting.

For shareholders, one of the primary disadvantages of remote participation is the lack of face-to-face communication. Critics of virtual meetings contend that shareholders should have the ability to confront the board of directors and assess their verbal and physical responses.

Since voting may occur “live” rather than via proxy vote, virtual meetings can also be unpredictable, particularly when deciding a controversial issue. The other primary concern is the risk of fraud and the validity of shareholder votes. In recent years, technology has helped ease security concerns, with special software platforms available that verify shareholder identities, validate shareholder votes, and deter hacking or identity fraud.

Applicable State Corporate Laws

The State of Delaware has allowed virtual shareholder meetings for more than a decade. In total, 22 states currently allow virtual meetings of shareholders. However, many other states have been much less willing to allow companies to exclusively hold their shareholder meetings online. Some states require shareholder approval prior to conducting a remote shareholder meeting, while others, like New York, preclude them altogether.

New Jersey law, N.J.S.A 14A:5-1, authorizes shareholders to remotely participate in physical shareholder meetings. However, there are several requirements for remote participation. Most notably, a shareholder who participates in a shareholders’ meeting “will be deemed present and be entitled to vote at the meeting” if the corporation has implemented reasonable measures to:

• (a) Verify that each person participating remotely is a shareholder; and
• (b) Provide each shareholder participating remotely with a reasonable opportunity to participate in the meeting, including an opportunity to vote on matters submitted to the shareholders, and to read or hear the proceedings of the meeting substantially concurrently with those proceedings.

In addition to reviewing applicable state law, companies should also determine whether any changes must be made to governing documents, such as the company’s certificate of incorporation or bylaws. If your business has not updated these documents recently, amendments are likely needed.

Do you have any questions? Would you like to discuss the matter further? If so, please contact me, Charles Friedrich, at 201-806-3364.