By Matthew Hooker
For the duration of the COVID-19 emergency, North Carolina corporations may conduct shareholders’ meetings completely via remote communication technology, pursuant to an executive order by Governor Roy Cooper.[1] This order temporarily resolves an ambiguity in the North Carolina Business Corporation Act pertaining to remote participation in shareholders’ meetings, allowing North Carolina corporations to address pressing business matters without raising concerns about the validity of actions taken at wholly virtual shareholders’ meetings.[2]
The global crisis stemming from the COVID-19 pandemic[3] has brought the global, national, and local economies to a collective screeching halt.[4] For those businesses that have sought to continue operations, those operations now look vastly different. In the United States, currently at least forty-two states, the District of Columbia, and Puerto Rico (together representing around 316 million people) are under various forms of “stay-at-home” orders.[5] Now that avoiding even small groups and staying at home have become the new normal, virtual conferencing platforms using video and screen sharing technology have quickly emerged as vitally necessary to businesses’ continued operations.[6]
Corporations in North Carolina have been forced to deal with the question of whether shareholders’ meetings may be conducted completely remotely and still be valid under North Carolina law. As drafted, the North Carolina Business Corporation Act is not entirely clear on this issue; it can be interpreted as providing that a valid shareholders’ meeting may only be held at a physical location. To illustrate, the Act refers to holding both annual and special meetings “in or out of this State at the place stated in or fixed in accordance with the bylaws”[7] and requires that a valid notice of a meeting include the “place” of the meeting.[8] Under certain circumstances, the Act allows shareholders to participate and vote in those meetings “by means of remote communication.”[9] But the Act is silent as to whether the entire meeting may be held virtually with no physical place of meeting.[10]
To bring clarity to this issue in light of the COVID-19 pandemic and the need for business to be conducted remotely as much as possible, North Carolina Governor Roy Cooper issued an executive order on April 1, 2020 authorizing and encouraging remote shareholders’ meetings.[11] This order appears to apply equally to annual meetings and special meetings. Under the order, a corporation’s board of directors may determine that all or part of a shareholders’ meeting may be held solely via remote communication.[12] This type of remote shareholders’ meeting is permissible under two conditions: (1) shareholders must be allowed to participate and vote under the existing remote participation and voting statute,[13] and (2) all shareholders must have the right to participate in the meeting via remote communication.[14] Governor Cooper’s executive order resolves the ambiguity of the North Carolina Business Corporation Act by providing that a “place” of a meeting within the meaning of the Act can include a meeting where all shareholders participate through remote communication (i.e., there is no physical “place” of the meeting).[15]
But the order goes even further. It also permits a corporation’s board of directors to limit the number of attendees physically present at a shareholders’ meeting in order to ensure conformity to other state gathering restrictions.[16] In other words, it appears that not only may a board of directors call for a completely remote shareholders’ meeting, but the board could also hold a meeting at a physical place but then prohibit shareholders from physically attending and force shareholders to attend remotely.
This executive order provides North Carolina corporations with clarity during the COVID-19 crisis. It enables them to conduct meetings and business that involve shareholders without fear that actions taken at a remotely held shareholders’ meeting will be deemed void.[17] In the midst of a global crisis such as COVID-19, it is important that corporations can continue to operate as best as they can without compromising the health and safety of shareholders, among others.
However, not only does Governor Cooper’s order resolve this important issue for corporations as long as the COVID-19 emergency lasts, but it also reveals that the North Carolina Business Corporation Act needs updating. The current version of the North Carolina Business Corporation Act was enacted in 1989 and thus does not comprehend many of the vast technological shifts and developments of the 21st century.[18] Although the Act was amended in 2013 to allow shareholders to remotely participate in shareholders’ meetings,[19] the addition of that provision only explicitly allows remote participation; the Act overall still seems to contemplate some sort of physical location where the meeting is actually held. If anything, that 2013 amendment creates ambiguity rather than resolving confusion. Interestingly enough, Governor Cooper’s executive order actually concludes by advising that the order should not be construed or interpreted as suggesting that a shareholders’ meeting held wholly via remote communication would not otherwise be valid if not for the executive order.[20] Thus, even Governor Cooper’s order seems to subtly acknowledge the lack of clarity within the North Carolina Business Corporation Act on this matter.
The world has changed greatly since 1989—and even since 2014. With key provisions of the North Carolina Business Corporation Act now over three decades old, it may be time for the North Carolina legislature to revisit the Act. Modern technology has opened up a world of possibilities for corporations, and the Act should reflect that. Remote communication options are just one example. These technologies are becoming increasingly prevalent and dependable—even when no global health crisis exists—and the law should not inhibit progress in the corporate context. In fact, Delaware has long permitted shareholders’ meetings to be held solely via remote communication.[21] Amending the North Carolina Business Corporation Act will align North Carolina with other leading states in corporate law. Ultimately, this will enhance North Carolina’s viability as a modern, attractable location for entity incorporation as well as facilitate existing domestic corporation’s continued leverage of the digital world.
[1] See N.C. Exec. Order No. 125 (Roy Cooper, Governor) (Apr. 1, 2020), https://files.nc.gov/governor/documents/files/EO125-Authorizing-Encouraging-Remote-Shareholder-Meetings.pdf.
[2] See id. § 1(A).
[3] See WHO Director-General’s opening remarks at the media briefing on COVID-19 – 11 March 2020, World Health Org. (Mar. 11, 2020), https://www.who.int/dg/speeches/detail/who-director-general-s-opening-remarks-at-the-media-briefing-on-covid-19—11-march-2020.
[4] See, e.g., Harriet Torry & Anthony DeBarros, WSJ Survey: Coronavirus to Cause Deep U.S. Contraction, 13% Unemployment, Wall St. J. (Apr. 8, 2020, 10:00 AM), https://www.wsj.com/articles/wsj-survey-coronavirus-to-cause-deep-u-s-contraction-13-unemployment-11586354400.
[5] Sarah Mervosh et al., See Which States and Cities Have Told Residents to Stay at Home, N.Y. Times, https://www.nytimes.com/interactive/2020/us/coronavirus-stay-at-home-order.html (last updated Apr. 7, 2020).
[6] See, e.g., Akanksha Rana & Arriana McLymore, Teleconference Apps and New Tech Surge in Demand Amid Coronavirus Outbreak, Reuters (Mar. 13, 2020, 3:33 PM), https://www.reuters.com/article/us-health-coronavirus-teleconference/teleconference-apps-and-new-tech-surge-in-demand-amid-coronavirus-outbreak-idUSKBN21033K.
[7] N.C. Gen. Stat. §§ 55-7-01(b), 55-7-02(c) (2019).
[8] Id. § 55-7-05(a).
[9] Id. § 55-7-09(a).
[10] Cf. § 55-7-05(a) (requiring notice of the place of the shareholders’ meeting).
[11] See N.C. Exec. Order No. 125, supra note 1.
[12] Id. § 1(A).
[13] See N.C. Gen. Stat. § 55-7-09.
[14] N.C. Exec. Order No. 125, supra note 1, at § 1(A)(1)–(2).
[15] See id. § 1(B)(2).
[16] Id. § 1(B)(3).
[17] See id. § 1(C).
[18] See 1989 N.C. Adv. Legis. Serv. 265 (LexisNexis).
[19] See N.C. Gen. Stat. § 55-7-09 (2019); 2013 N.C. Adv. Legis. Serv. 153 (LexisNexis).
[20] See N.C. Exec. Order No. 125, supra note 1, at § 1(D).
[21] See Del. Code Ann. tit. 8, § 211(a) (2020).
