July 22, 2020 | By Patrick T. McCloskey
This post has been updated to reflect that the BCL amendments described herein will remain effective for the duration of New York’s Covid-19 state of emergency or until December 31, 2021, whichever is later. These BCL amendments were previously set to expire on December 31, 2021.
On April 6, 2020 Governor Cuomo signed into law amendments to the New York Business Corporation Law (BCL) to facilitate corporate governance via remote communication during New York’s Covid-19 state of emergency. These modifications were initially implemented by Governor Cuomo on an interim basis through Executive Orders during the earlier stages of the Covid-19 pandemic, and although the changes were codified by legislative enactment later in 2020, they were initially set to expire on December 31, 2021. As a result of the recent legislation, these changes will remain effective for the duration of New York’s Covid-19 state of emergency or until December 31, 2021, whichever is later.
Subject to the modified effectiveness period: (i) Section 602(a) of the BCL has been amended to give a board of directors the discretion to convene a virtual shareholders’ meeting1 and (ii) Section 708(b) of the BCL has been amended to provide that directors may deliver a unanimous written consent by e-mail.
Virtual Shareholders’ Meetings
While Governor Cuomo’s prior Executive Orders implicitly blessed virtual shareholders’ meetings (BCL §§ 602 and 605 were temporarily suspended or modified “to the extent they require[d] meetings of shareholders to be noticed and held at a physical location”), the legislative amendment to BCL § 602(a) expressly permits a board of directors to convene a virtual shareholders’ meeting so long as such board is authorized to determine the place of shareholders’ meetings on behalf of the applicable corporation.
As amended, Section 602(a) of the BCL provides:
Meetings of shareholders may be held at such place, within or without this state, as may be fixed by or under the by-laws, or if not so fixed, as determined by the board of directors. For the duration of the state disaster emergency declared by executive order two hundred two that began on March seventh, two thousand twenty, or until December thirty-first, two thousand twenty-one, whichever is later, if, pursuant to this paragraph or the bylaws of the corporation, the board of directors is authorized to determine the place of a meeting of shareholders, the board of directors may, in its sole discretion, determine that the meeting be held solely by means of electronic communication, the platform/service of which shall be the place of the meeting for purpose of this article.
The BCL was amended in October 2019 to permit hybrid shareholders’ meetings,2 but the concept of a virtual shareholders’ meeting for a New York corporation was not condoned until Governor Cuomo signed Executive Order 202.8 on March 20, 2020.3
In addition to the temporary amendment to BCL § 602(a), analogous temporary amendments permitting virtual meetings were also made to the New York Not-For-Profit Corporation Law and the New York Religious Corporation Law, with the same effective periods.
On top of the health and safety issues associated with an in-person shareholders’ meeting, or even a hybrid meeting where shareholders have the right to physically attend, the restrictions governing such meetings, to the extent held in New York, would be subject to applicable Executive Order restrictions governing non-essential gatherings.4
Delivery of Unanimous Written Consent by E-mail
The other amendment to the BCL modifies § 708(b) to provide that when a board acts by unanimous written consent in lieu of a meeting, each director may deliver its written consent by e-mail transmission, so long as it can be reasonably determined that such e-mail was authorized by the applicable director.
As amended, BCL Section 708(b) provides:
Unless otherwise restricted by the certificate of incorporation or the by-laws, any action required or permitted to be taken by the board or any committee thereof may be taken without a meeting if all members of the board or the committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents thereto by the members of the board or the committee shall be filed with the minutes of the proceedings of the board or committee. For the duration of the state disaster emergency declared by executive order two hundred two that began on March seventh, two thousand twenty, or until December thirty-first, two thousand twenty-one, whichever is later, notwithstanding any provision of law to the contrary, the written consent of a member may be made electronically, where such consent is submitted via electronic mail along with information from which it can be reasonably determined that the transmission was authorized by such member.
For boards of directors that wish to approve matters by unanimous written consent instead of convening a meeting, this additional language clarifies that such written consents may, during the effectiveness of the amendment, be delivered by e-mail transmission. Alternatively, a board of directors could convene a meeting “by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time,5 in which case approval need not be unanimous, but must conform to the quorum and approval provisions contained in the corporation’s bylaws.
The above referenced alternatives to an in-person board meeting are subject to any provisions in the applicable corporation’s certificate of incorporation or bylaws that may limit or prohibit such actions.6
This 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).
1A virtual shareholders’ meeting has no physical location—all attendees participate via remote communication.
2A hybrid shareholders’ meeting has a physical location, but shareholders who wish to attend can do so by physical attendance or through remote communication.
3Numerous other states, including Delaware, permit virtual stockholders’ meetings and, unlike New York, there is no limitation on the statutory duration tied to the Covid-19 pandemic. See Section 211(a)(1) of the Delaware General Corporation Law.
4While it is not clear whether a meeting of shareholders would be deemed to be a “non-essential gathering” for purposes of state or city Executive Orders, the conservative approach would be to assume that a meeting of shareholders would be.
5See BCL § 708(c)
6See BCL §§ 708(b) & (c).