As discussed in our March 17, 2020 and April 3, 2020 client alerts, the COVID-19 pandemic significantly impacted the ability of North Carolina corporations to hold in-person meetings of shareholders. Because the North Carolina Business Corporation Act (NCBCA) required shareholders’ meetings to be held in person (with or without a remote participation component in the discretion of the board), on April 1, 2020, Governor Cooper issued Executive Order No. 125 – Authorizing and Encouraging Remote Shareholder Meetings During the COVID-19 State of Emergency. This executive order, which was subsequently extended, permitted North Carolina corporations to hold virtual-only shareholders’ meetings during the state of emergency.
On September 16, 2021, the North Carolina General Assembly passed, and on September 20, 2021, Governor Roy Cooper signed into law, Session Law 2021-162 (House Bill 320), which includes amendments to the NCBCA to authorize North Carolina corporations to conduct shareholders’ meetings entirely by means of remote communication without any requirement that a meeting be held in a physical "place." The amendments to the NCBCA now codify the ability of North Carolina corporations to hold virtual-only shareholders’ meetings in the board’s discretion, regardless of whether there is a public health emergency.
The practical impact of these amendments is to provide North Carolina corporations greater flexibility in how they conduct shareholders’ meetings by better conforming the NCBCA with the Delaware General Corporation Law and the Model Business Corporation Act. These amendments also provide public companies with flexibility regarding notice requirements in the event that a public health emergency in the future requires a shift to a virtual-only meeting. The amendments are welcome updates that will benefit North Carolina corporations and their shareholders.
Summary of the Amendments
- Applicability: The amendments apply to both annual and special shareholders’ meetings.
- Notice requirements for public corporations: Publicly traded corporations that have previously provided a notice required by the NCBCA to shareholders of the date, time and place of a shareholders’ meeting are not required to provide an additional NCBCA notice regarding a change to a virtual-only meeting if each of the following conditions apply:
- A governmental order restricting travel or group gatherings is in effect and is anticipated in good faith by the board of directors to be in effect at the date and time in the initial notification of the shareholders’ meeting.
- The board of directors determines to proceed with virtual-only meeting, which may be held either at the same date and time as the original meeting or at a different date and time.
- The public corporation (i) promptly issues a press release for national dissemination regarding the change to a virtual-only meeting and (ii) files the press release with the Securities and Exchange Commission and posts it on the corporation’s website.
- Requirements for conducting a virtual-only meeting: Consistent with prior law relating to participation by remote communication in a shareholders’ meeting (so-called "hybrid meetings"), the corporation must implement reasonable measures to:
- Verify each person participating remotely is a shareholder; and
- Provide each shareholder participating remotely a reasonable opportunity to participate in the meeting and vote on matters submitted to the shareholders.
- Articles of incorporation/bylaws: Unless the corporation’s organizational documents prohibit conducting shareholders’ meetings solely by means of remote communication, the board has the authority to hold virtual-only shareholders’ meetings. The amendments purposely make the default position that virtual-only meetings are permissible, and in general corporations will not be required to update their articles or bylaws to take advantage of these amendments.
- Shareholders’ list: The amendments make generally technical revisions to the shareholders’ list requirements to facilitate making the corporation’s shareholders’ list available electronically and requiring that it be made available electronically during a virtual-only meeting.
- Effective date: The amendments are effective immediately and apply to shareholders’ meetings noticed on or after September 20, 2021.
- Validity of prior meetings: Virtual-only shareholders’ meetings noticed prior to September 20, 2021 as a result of the state of emergency declared by Governor Cooper in Executive Order No. 116 on March 10, 2020 and complying with subsequent executive orders authorizing virtual-only shareholders’ meetings are deemed to be in compliance with the amendments.
The amendments are generally self-executing, but we recommend that North Carolina corporations review their articles of incorporation and bylaws now to determine whether any revisions should be made to permit or facilitate virtual-only meetings of shareholders. In deciding whether to hold an in-person-only, hybrid or virtual-only shareholders’ meeting, boards of directors should consider the relevant factors at the time of the meeting, including shareholder expectations, public safety and (if applicable) proxy advisor guidance, and balance the advantages and disadvantages of allowing or requiring remote participation in the meeting. In general, we expect that, absent a pandemic, the majority of shareholders’ meetings will continue to be held in person or in a hybrid format but that the ability to participate remotely will continue to increase.