March 23, 2020 | By Patrick T. McCloskey
This blog post is being updated to reflect that on May 7, 2020 New York State Governor Andrew Cuomo signed
Executive Order No. 202.28, which extended the temporary suspension or modification of laws made by Executive Order 202 and each successor Executive Order up to and including Executive Order 202.14, for 30 days until June 6, 2020, except as otherwise modified in Executive Order 202.28.
As a result of Executive Order 202.28, the temporary suspension or modification of subsection (a) of Section 602 and subsections (a) and (b) of Section 605 of the Business Corporation Law, to the extent they require meetings of shareholders to be noticed and held at a physical location, has been extended until June 6, 2020.
In addition, Executive Order No. 202.18, previously signed by Governor Cuomo on April 16, 2020, continued the prior Executive Orders of the Governor postponing or canceling all non-essential gatherings of individuals of any size for any reason, such that all in-person business restrictions and workplace restrictions will be effective until 11:59 pm on May 15, 2020, unless later extended by a future Executive Order.
This blog post is being updated to reflect that on April 7, 2020 New York State Governor Andrew Cuomo signed Executive Order No. 202.14, which extended the temporary suspension or modification of laws made by Executive Order 202, and each successor to Executive Order 202, for 30 days until May 7, 2020, except as limited by Executive Order 202.14.
As a result of Executive Order No. 202.14, the temporary suspension or modification of subsection (a) of Section 602 and subsections (a) and (b) of Section 605 of the Business Corporation Law, to the extent they require meetings of shareholders to be noticed and held at a physical location, has been extended until May 7, 2020.
On March 20, 2020 Governor Andrew Cuomo signed Executive Order 202.8 which, among other things, suspended or modified certain statutes until April 19, 2020. Included in the list were “[s]ubsection (a) of Section 602 and subsections (a) and (b) of Section 605 of the Business Corporation Law, to the extent they require meetings of shareholders to be noticed and held at a physical location.” (Italics added).
Prior to Executive Order 202.8, the above referenced sections of the New York Business Corporation Law (“BCL”) required that shareholders’ meetings of New York corporations be held at a physical place, with notices of such meetings specifying such place.1 The BCL was amended in October 2019 to allow shareholders to participate and vote remotely, if authorized by the board of directors, which put New York into the category of allowing so-called hybrid shareholder meetings, but not virtual shareholders’ meetings.2 The distinction between a hybrid shareholders’ meeting and a virtual shareholders’ meeting is significant. Unlike a virtual meeting, a hybrid meeting must afford each shareholder the opportunity to attend, participate and vote in-person at the physical location.
While Governor Cuomo’s Executive Order appears to open the door for virtual shareholders’ meetings by New York corporations through April 19, 2020, any New York corporation that seeks to hold a virtual shareholders’ meeting during this period should consult with legal counsel to ensure compliance with the corporation’s certificate of incorporation and bylaws.
Under the Delaware General Corporation Law (the “DGCL”), the board of directors of a Delaware corporation can call a virtual stockholders’ meeting, but only if the board is authorized to determine the place of a meeting of stockholders.3 If the certificate of incorporation or bylaws contain a limitation or restriction that does not authorize the board of directors to determine the place of a meeting of stockholders, then that Delaware corporation may not hold a virtual stockholders’ meeting.
There is a proposed bill in the New York Senate which, if eventually enacted, would amend the BCL to essentially mirror the analogous provisions in the DGCL.4
Virtual shareholders’ meetings have obviously become a hot topic as a result of the COVID-19 outbreak. The Securities and Exchange Commission’s Division of Corporate Finance recently published guidance for public companies, including recommendations related to virtual shareholders’ meetings.
Regardless of what a New York corporation’s certificate of incorporation and bylaws provide, any in-person shareholders’ meeting held by a New York corporation at a physical location in the current environment would certainly contravene public health recommendations on social distancing to address the COVID-19 outbreak. Depending on the number of shareholders, an in-person meeting of shareholders held at a physical location might be unlawful, at least in New York City. Mayor de Blasio’s Emergency Executive Order No. 102, also signed on March 20, 2020, cancels or postpones any large gathering or event which is expected to be attended by more than 50 people (or the maximum number permitted by an order of the Governor).5
Under BCL Section 602(c), the failure to hold an annual meeting of shareholders by the date fixed by or under the bylaws will not result in a forfeiture of or give rise to a dissolution of the corporation,6 subject to certain shareholder petition rights if there is a shareholder deadlock for a period that includes at least two annual meeting dates.7
In unusual circumstances a board of directors could be required to hold a special meeting of shareholders to elect directors under Section 603(a) of the BCL, but only if (1) there is a failure to elect a sufficient number of directors to conduct the business of the corporation, and (2) the failure continues for a period of one month after the date fixed for the annual meeting or, if no date is fixed, for a period of thirteen months after the formation of the corporation or the last annual meeting.8
1 See BCL Section 6.02(a) (“Meetings of shareholders may be held at such place, within or without this state, as may be fixed by or under the bylaws, or, if not so fixed, at the office of the corporation in this state.”) (Italics added).
2 See BCL Section 6.02(b)(i) (“A corporation may, if authorized by the board of directors: (1) implement reasonable measures to provide shareholders not physically present at a shareholders’ meeting a reasonable opportunity to participate in the proceedings of the meeting substantially concurrently with such proceedings; and/or (2) provide reasonable measures to enable shareholders to vote or grant proxies with respect to matters submitted to shareholders at a shareholders’ meeting by means of electronic communication . . .”) See also BCL Section 602(b)(iii) (“[r]easonable measures with respect to participating in proceedings shall include, but not be limited to, audio webcast or other broadcast of the meeting and for voting shall include but not be limited to telephonic and internet voting.”)
3 See Section 211(a)(1) of the DGCL (“Meetings of stockholders may be held at such place, either within or without this State as may be designated by or in the manner provided in the certificate of incorporation or bylaws, or if not so designated, by the board of directors. If, pursuant to this paragraph or the certificate of incorporation or bylaws of the corporation, the board of directors is authorized to determine the place of a meeting of stockholders, the board of directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication . . .”)
4 See Senate Bill S3894 (2019-2020 Legislative Session).
5 See Emergency Executive Order No. 102 (March 20, 2020).
6 See BCL Section 602(c) (“A meeting of shareholders shall be held annually for the election of directors and the transaction of other business on a date fixed by or under the bylaws. A failure to hold the annual meeting on the date so fixed or elect a sufficient number of directors to conduct the business of the corporation shall not work a forfeiture or give cause for dissolution of the corporation, except as provided in paragraph (c) of Section 1104 (Petition in the case of a deadlock among directors or shareholders.”)
7 See BCL Section 1104(c) (“[a]ny holder of shares entitled to vote at an election of directors of a corporation, may present a petition for its dissolution on the ground that the shareholders are so divided that they have failed, for a period which includes at least two consecutive annual meeting dates, to elect successors to directors whose terms have expired or would have expired upon the election and qualification of their successors.”)
8 See BCL Section 603 (“If, for a period of one month after the date fixed by or under the bylaws for the annual meeting of shareholders, or if no date has been so fixed, for a period of thirteen months after the formation of the corporation or the last annual meeting, there is a failure to elect a sufficient number of directors to conduct the business of the corporation, the board shall call a special meeting for the election of directors. If such meeting is not called by the board within two weeks after the expiration of such period or if it is called but there is a failure to elect such directors for a period of two months after the expiration of such period, holders of ten percent of the votes of the shares entitled to vote in an election of directors may, in writing, demand the call for an election of directors specifying the date and month thereof . . .”)
This blog post is for general informational purposes only and does not constitute legal advice. No one should rely on the information in this blog post without seeking appropriate legal, accounting, tax or other appropriate advice from an attorney, accountant or other professional properly licensed in the applicable jurisdiction(s).