Even as the COVID-19 pandemic is receding and the economy is being reopened, there are many businesses that are continuing to abide by social distancing and the use of remote technologies as substitutes for face-to-face gatherings. This applies to meetings that are generally required for corporate governance purposes. In general, shareholder meetings and board of director meetings can be held with the use of audio-visual technology. But careful attention should be paid to avoid legal and practical pitfalls.

Following Bylaw/Article or Statutory Requirements

Most statutes that govern corporations permit some form of remote or telephonic attendance at corporate meetings. For example, section 450.1405 of the Michigan Business Corporations Act permits shareholder meetings to be conducted in this manner unless restricted by the articles of incorporation or bylaws and if the Board authorizes telephonic or remote attendance and if all participants are advised of the means of telephonic or remote communications. Three other conditions also must be met under the statute:

• The corporation must implement “reasonable measures” to verify that the persons attending are, in fact shareholders or proxy holders
• “Reasonable measures” must be implemented to ensure that each person has a “reasonable opportunity to participate” and
• Any votes or actions taken must be duly recorded and maintained in the corporate records

Section MCL 450.2521 provides similar rules for directors’ meetings.

As a practical matter, there are a number of widely available software and online programs that can be used for virtual meetings. Indeed, in theory, shareholders, proxy holders, and directors could participate in corporate meetings if they had a smartphone and an app like FaceTime or a computer enabled with Skype. What is needed is a program that allows the parties to see and talk with each other. If the participants are personally known to each other, then the identification requirement is met.

Practical consideration should also be given to how documents are shared and exchanged. This might be done via email or by sending paper copies through the regular mail in advance of the meetings.

Online Cybersecurity Concerns

Generally, shareholder and director meetings are supposed to be confidential. This facilitates communications among the shareholders and directors that is open and frank. However, some software and applications that allow virtual meetings may be vulnerable to hacking or other spyware that can compromise the confidentiality of the meetings. Thus, corporate entities that are planning to engage in remote meetings should carefully examine software and third-party hosting options to ensure adequate cybersecurity.

Deleting Digital Copies of Virtual Meetings

By the nature of the technology, any virtual meeting creates a digital copy. Many mistakenly believe that all digital copies must be retained. However, corporations should carefully consider adopting a policy that deletes any and all copies of virtual corporate meetings. Again, corporate meetings should be designed and conducted in a manner that encourages full and frank discussions. Achieving that goal is more difficult if participants know that what they say is retained permanently in an electronic format. It is better to have the standard short written record that is kept in the Corporate Minute Book.

How to Proceed?

If your corporate bylaws or articles already permit remote attendance, then the only care that must be taken is to send proper notice of the meeting(s) that explains the process for attending remotely.

If, on the other hand, your corporation has not adopted bylaws allowing for remote participation, then matters are a bit more complicated. Under the Michigan statute, the articles or bylaws will have to be amended to allow for remote participation. That might be accomplished via unanimous written authorization or might have to be accomplished via one final face-to-face meeting.

Other Types of Corporate Entities

In general, other types of corporate entities are permitted to have meetings with remote participation. The rules are similar, but there are slight variations. Experienced Michigan business attorneys can provide assistance in enacting the proper corporate policies and procedures to allow for remote participation.

If you need legal guidance with remote participation in corporate meetings or with any other corporate governance question, contact the business lawyers at Revision Legal at 231-714-0100.

Quorum, Voting, and Authentication Requirements

The legal validity of a corporate meeting conducted via audio-visual technology depends on satisfying the same quorum and voting requirements that apply to in-person meetings, along with any additional requirements specific to remote attendance that may appear in the applicable state statute, the articles of incorporation, or the corporate bylaws. Under Michigan Business Corporation Act § 450.1405, the requirement that the corporation implement reasonable measures to verify that participants are in fact shareholders or proxy holders is a statutory prerequisite for the remote meeting to be legally valid. A meeting that proceeds without adequate verification of attendee identity can be challenged, and actions taken at that meeting can potentially be voided.

Proxy voting adds a layer of complexity. When shareholders vote by proxy at a virtual meeting, the corporation must verify not only that the proxy holder is who they claim to be, but also that the underlying proxy instrument is valid, properly executed, and covers the matters being voted on. The proxy should be submitted in advance, in writing, and the meeting host should maintain a verification log documenting when each proxy was received and confirmed.

Record-Keeping Obligations

Corporate records related to meetings—whether held in person or virtually—must satisfy the record-keeping requirements of the applicable state corporate statute and the corporation’s bylaws. Under Michigan law, meeting minutes must be prepared and maintained as part of the corporate books and records accessible to shareholders under MCL 450.1487. For virtual meetings, the record-keeping obligation extends to documentation of the attendance verification process, any technical issues that affected participation, and the mechanism used to record votes.

If a virtual meeting is recorded, the recording itself becomes part of the corporate records and must be retained accordingly. Corporations should establish a policy governing who controls access to meeting recordings, how long they are retained, and what happens if a recording contains confidential deliberations. Board sessions conducted via video conference have heightened confidentiality expectations, and inadvertent access to recordings by unauthorized persons can create governance complications.

Cybersecurity Requirements for Board and Shareholder Meetings

The confidentiality requirement for corporate meetings has direct cybersecurity implications. Board members deliberating on material nonpublic information—pending M&A transactions, earnings results, regulatory investigations—must ensure that their virtual meetings cannot be intercepted, recorded by unauthorized parties, or accessed by individuals not entitled to the information. A board that discusses material nonpublic information in a meeting accessible to unauthorized listeners may expose the corporation and its officers to securities law liability under Rule 10b-5 and Regulation FD.

Practical measures include: using platforms with end-to-end encryption; enabling waiting rooms and admitting only verified participants; disabling participant screen-sharing and local recording unless specifically authorized; using a roll call at the start of every meeting to confirm attendee identity; and distributing confidential board materials only via secure portals rather than email attachments.

Delaware and Other State Variations

Michigan’s corporate statute is representative but not universal. Delaware General Corporation Law § 211(a)(2) permits shareholder meetings to be held entirely by means of remote communication provided the corporation implements measures to verify shareholder identity, provide shareholders a reasonable opportunity to participate, and maintain records of the votes. Delaware added express authorization for virtual-only annual meetings in 2009, and many large public companies now hold their annual meetings exclusively online.

Nevada, Delaware, and several other states now expressly permit virtual-only shareholder meetings without any in-person component. States that have not expressly authorized virtual-only meetings—and some corporations whose bylaws predate the widespread adoption of remote-meeting technology—may require a bylaw amendment before conducting a fully virtual annual meeting. Counsel should review the governing documents and applicable state statute before scheduling a virtual-only meeting to avoid a subsequent challenge to meeting validity.

• Review the corporation’s articles and bylaws for any restrictions on remote meeting procedures and amend them if necessary before conducting a virtual meeting.
• Prepare and retain a written attendance log documenting the verification method used and the identity of each participant.
• Use an encrypted, password-protected platform; distribute credentials only to verified participants within 24 hours of the meeting.
• Prepare written minutes promptly after the meeting documenting that all statutory requirements were met.
• Consult counsel before conducting a virtual shareholder meeting involving contested elections or significant governance decisions.

If you have questions about virtual corporate governance, bylaw compliance, or protecting confidential business information in remote meeting settings, contact the business lawyers at Revision Legal at 231-714-0100.