In our previous alert, Annual Meetings in a World Without Meetings: The Impact of COVID-19 on Public Companies, we discussed some of the practical steps that public companies can take to hold annual meetings in light of the prevalence of stay at home orders in North Carolina and across the country. As discussed in the alert, North Carolina corporations have historically not been permitted to hold virtual-only meetings of shareholders, as Section 55-7-09(b) of the North Carolina Business Corporation Act (NCBCA) requires that annual meetings be held in a physical location, either exclusively or with an option to participate remotely.
Virtual-Only Meetings Permitted
On April 1, 2020, North Carolina Governor Roy Cooper issued Executive Order No. 125 Authorizing and Encouraging Remote Shareholder Meetings During the COVID-19 State of Emergency (Order). The Order, effective immediately, permits North Carolina corporations that hold, commence or send formal notice to their shareholders of meetings during North Carolina’s state of emergency (as declared under Executive Order No. 116) to conduct entirely virtual annual meetings. The Order is consistent with orders issued by the governors of a number of other states permitting and encouraging virtual-only meetings. North Carolina corporations may hold virtual-only meetings under the Order by giving shareholders (i) the right to participate in the meeting by means of remote communication, including with respect to the conduct of the business of the meeting, and (ii) the opportunity to participate in, and vote at, such meeting of shareholders in accordance with the provisions of Section 55-7-09 of the NCBCA.
NCBCA Section 55-7-09 provides that remote communication is permitted for a meeting of shareholders if two conditions are met. First, the corporation’s board of directors must authorize remote participation. Second, for shareholders to be deemed present and to vote at such a meeting, the corporation must implement reasonable measures to (i) verify that each person participating remotely is a shareholder and (ii) provide each shareholder participating remotely a reasonable opportunity to participate in the meeting and to vote on matters submitted to the shareholders, including an opportunity to communicate and read or hear the proceedings of the meeting, substantially concurrently with such proceedings. As discussed in our prior alert, these requirements can be facilitated through the use of online platforms hosted by experienced providers of virtual annual meeting services.
In addition, the Order also provides that, to the extent any meeting of shareholders is held at a physical location, the corporation’s board of directors may limit the number of in-person attendees at the meeting in accordance with the restrictions on mass gatherings enacted by the Governor during the current state of emergency.
Effectiveness and Duration of the Order
The Order is effective until May 31, 2020, unless amended or rescinded by a subsequent executive order or if the Governor declares the current state of emergency to be over. If the state of emergency lasts beyond May 31, 2020, we expect the Governor would revisit the Order for extension.
Steps to Take
North Carolina corporations that plan to hold or send notice of the holding of a meeting of shareholders during the current North Carolina state of emergency should consider holding or being prepared to hold a virtual-only meeting or a hybrid meeting (in-person and virtual), as the Order both permits these activities and also makes clear that meetings of shareholders may not be held in person if they will violate the restrictions on mass gatherings.
For North Carolina public companies that have already filed their proxy statements, as discussed in our prior alert, recent guidance from the Securities & Exchange Commission’s Division of Corporation Finance permits public companies to change the date, time or location of their meetings without mailing additional soliciting materials to shareholders so long as certain conditions are met. We expect that compliance with these requirements will likely be sufficient from a state law notice standpoint unless there is a particularly controversial measure on the agenda (although this should be examined closely). This is especially the case if the company’s proxy statement already previewed the possibility of holding a hybrid meeting and the corporation is now switching to a virtual-only meeting. If possible, though, companies should consider sending an updated notice to shareholders notifying them of the change. Sending a formal notice should also invoke the relief under the Order in the event that the state of emergency is rescinded before the meeting is held.
For North Carolina public companies that have not already mailed their proxy materials (including meeting notices) to shareholders, they should strongly consider holding a virtual-only meeting or, at a minimum, informing shareholders that the meeting may be partially or entirely virtual. So long as formal notice to shareholders of a virtual-only meeting is sent while the Order is in effect, the meeting should be able to be held virtually even after the state of emergency is lifted or the Order otherwise expires.
If you have any questions related to this alert, please do not hesitate to contact any member of the Public Companies group or your regular Smith Anderson lawyer. Please visit and bookmark our firm’s Coronavirus (COVID-19) Business Resource Center, which is continuously updated with useful materials and resources related to COVID-19. This tool has been made available to ensure that our clients and the broader business community stay informed on key issues that may impact their operations and to navigate the related business and legal issues during these challenging times.