California Corporations – Virtual Shareholder Meetings

On Behalf of | Oct 4, 2017 | Business Litigation |

A “Virtual Shareholder Meeting” is one in which the shareholders not physically present in person or by proxy participate in a meeting through electronic transmission or electronic video screen. California permits all or partial Virtual Shareholder Meetings, subject to numerous limitations and requirements.

California Corporations Code Section 20 defines “electronic transmission by the corporation” as a communication delivered by (1) facsimile telecommunication or electronic mail when directed to the facsimile number or electronic mail address, respectively, for that recipient on record with the corporation, (2) posting on an electronic message board or network which the corporation has designated for those communications, together with a separate notice to the recipient of the posting, which transmission shall be validly delivered upon the later of the posting or delivery of the separate notice thereof, or (3) other means of electronic communication. California Corporations Code Section 21 contains similar provisions with respect to “electronic transmission to the corporation”.

Use of electronic transmission by the corporation requires unrevoked consent of the use of those means of communication by the recipient. Additionally, if the recipient is an individual, the transmission must be preceded by a clear written statement as to (a) any right of the recipient to have a record provided or made available on paper or in non-electronic form, (b) whether this right of electronic transmission applies to all or only certain categories of communication, and (c) the procedures the recipient must follow to withdraw consent. See Cal. Corp. Code § 20. In addition to the foregoing, pursuant to California Corporations Code 600(e), any request by the corporation to a shareholder for consent to conduct a meeting of the shareholders by electronic transmission must include a notice that, absent consent of the shareholder, the meeting shall be held at a physical location. While the language is not as clear as one might hope (given the references to whole or partial electronic communications), the better interpretation is that the refusal by a single or few shareholders would not preclude those consenting from attending virtually.

Obtaining the consent described above and providing it is not prohibited by the By-Laws. A meeting of the shareholders may be conducted, in whole or in part, by electronic transmission by and to the corporation or by electronic video screen communication (a “Virtual Shareholder Meeting”). See Cal. Corp. Code § 600. Virtual Shareholder Meetings, whether in whole or in part, require the board of directors to establish guidelines and procedures for shareholders not physically present in person or by proxy. Cal. Corp. Code § 600(a).

At any Virtual Shareholder Meeting (whether in whole or in part) the corporation must for the shareholders participating electronically: (1) ensure there are reasonable measures which provide shareholders (in person or by proxy) a reasonable opportunity to participate in the meeting and to vote on matters submitted to the shareholders, including an opportunity to read or hear the proceedings of the meeting concurrently with those proceedings, and (2) if any shareholder votes or takes other action at the meeting by means of electronic transmission to the corporation or electronic video screen communication, maintain a record of that vote or action for the corporation.

If you have any questions on the above, please contact Michael Petersen, Esq. or any of the attorneys at Shulman Hodges &Bastian LLP at 949-340-3400

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