The Corporate Guide: Basics to Yearly Stock Holder Meetings

Does my company need to have a Stockholder meeting every year?

• According to Section 211 of the Delaware General Corporation Law (DGCL), a stockholder meeting should be held annually to elect directors and to transact any other proper business. DGCL § 211(b).
• If the annual meeting is not held within 13 months of the prior meeting, a stockholder may petition the Court of Chancery to direct that a meeting be held. DGCL § 211(c).
• The right to a meeting is so important that even bankruptcy cannot justify not holding a meeting. Saxon Indus., Inc. v. NFK Partners, 488 A.2d 1298 (Del. Ch. 1985)

What do I need to know about providing notice to stockholders?

• Form: Notice must either be in writing on paper, or by electronic means, such as email, if the stockholder has consented to such notice. The notice must state the place, date, hour and, in the case of a special meeting, the purpose of the meeting. DGCL § 222.
• Timing of Notice: Generally, notice must be given to stockholders of record with voting rights as of the notice record date not less than 10 days, or more than 60 days, before the meeting. That said, the board must confirm that the certificate of incorporation has not altered the statutory timing requirements. A vote on a merger or a vote on the sale of all or substantially all of a corporation’s assets requires a minimum of 20 days’ notice. DGCL §§ 251(c), 271(a).
• Separate Record Dates: If there are different record dates for notice of an annual meeting compared to the record date for stockholders authorized to vote at the meeting, the DGCL requires the notice to include the record date for determining whether stockholders are entitled to vote at the meeting.
  
  For example, a company may limit voting rights at an annual meeting to just those stockholders who became record holders of the company’s stock on or before a specified date, such as 45 days before the meeting, and held that stock through the date of the meeting. That same company also can decide to provide notice of the stockholder meeting 20 days before the meeting. In such circumstances, the DGCL requires written (or electronic) notice to make clear the record date for voting — in this example, the date 45 days before the meeting.
  
  Under the DGCL, notice is only required to be sent to those stockholders authorized to vote as of the notice record date. DGCL §222.
• Adjournments: If a stockholder meeting must be adjourned for any reason, the company need not issue new notice if the adjournment is for less than 30 days and the date, time, and place of the reconvened meeting is announced at the meeting prior to adjourning.
• Waiver: A stockholder may waive notice by signed writing or via electronic submission prior to or after the meeting. DGCL §229. If a stockholder attends an annual meeting, that stockholder will be deemed to have waived the right to contest notice unless attendance is solely for the purpose of objecting to the meeting, at the beginning, on the grounds that the meeting has been unlawfully convened.

Where can annual meetings be held?

• If a company’s certificate of incorporation and bylaws are silent about the location of an annual meeting, the meeting may be held at such place, inside or outside Delaware, as may be designated by the board of directors. DGCL § 211(a).
• Unless otherwise restricted by a company’s certificate of incorporation or bylaws, a company’s board of directors has sole discretion to hold the annual meeting entirely by electronic communication (instead of in person), provided there are procedures and guidelines that allow stockholders to participate in and vote at the “e-meeting.” DGCL § 211(a)(2).

Are all stockholders or their representatives required to attend the annual meeting?

The short answer is: no.

• That said, business at a stockholder meeting cannot be transacted without a quorum, which, by default, is a majority of shares that are entitled to vote. DGCL § 216.
• A corporation, through its bylaws or certificate of incorporation, can define a quorum to constitute more or less than a majority of shares. However, a quorum may never be less than one-third of shares entitled to vote. DGCL § 216.
• Stockholders who do not attend in person or by proxy cannot be counted in a quorum. Neither can shareholders who attend only to contest the legality of the meeting.

Are all record holders of shares with voting rights permitted to vote?

No. Those stockholders must be record holders on the record date.

• The record date cannot be less than 10 days or more than 60 days before the stockholder meeting. DGCL § 213(a).
• Stockholders who acquired their shares after the record date cannot vote.

How many votes can a stockholder have?

Generally, one vote per share.

• That said, the certificate of incorporation can alter the default of one vote for each share held. DGCL § 212(a).
• In Providence & Worcester Co. v. Baker, 378 A.2d 121 (Del. 1977), the Delaware Supreme Court upheld a certificate of incorporation that gave one vote for each share up to 50 shares, and one vote for every 20 shares above 50.
• Stockholders are not required to vote.

Are directors elected at annual meetings?

It depends.

• Typically, directors remain in office until their successors are elected at a stockholder meeting. DGCL § 141(b).
• Unless the certificate of incorporation eliminates this requirement, election of directors must be by written ballot. DGCL § 211(e). Electronic voting can satisfy this requirement, assuming the company has taken the steps to set up a reliable voting process with results that can be stored and referenced later.
• But directors also can be elected by written consent without an annual meeting (unless the certificate of incorporation provides otherwise) if: (i) the written consent is unanimous, or (ii) if less than unanimous, all the directorships that would have been up for election at the annual meeting were vacant and were filled by the consent. DGCL § 211(b).

How do written consents work?

• Any action that can be taken by stockholders at a meeting can be taken by written consent. DGCL § 228(a).
• A stockholder’s written consent must be: (i) on paper, or (ii) by means of a telegram, cablegram or other electronic transmission.
• While written consents through electronic means will be deemed to have been signed on the date of transmission, “e-consents” are not effective until they have been reproduced in paper form and delivered to the company. DGCL § 228(d).
• Written consents must be delivered to the corporation: (i) at the registered office in Delaware; (ii) at the principal place of business; or (iii) to the agent or officer having custody of the minutes of the stockholder meetings. DGCL § 228(c).
  • The consent is not effective until delivery.
  • The consent must be signed by the stockholders of record.
• Written consent may be revoked only by delivery of a signed revocation to the party soliciting consent or an opposing party.
• The right to act by consent may be limited or eliminated by the certificate of incorporation, but not by a bylaw provision.

Can stockholders vote without attending the annual meeting?

Yes, via a proxy.

• A proxy gives voting power to another individual or entity.
• Proxies do not need to take any particular form and may be drafted and construed broadly. DGCL § 212(c).
• A proxy is valid for three years unless it sets out another termination date. DGCL § 212(b).
• A proxy may be revoked in writing or by a proxy that is issued later in time. If more than one proxy is submitted for a particular stockholder, the one that was issued most recently controls.

Key Takeaway

Although this guide discusses some of the basics when preparing for a Delaware company’s annual meeting, there are many other legal, disclosure and logistical issues that this guide does not discuss. Some of those issues will be dependent on the type of proposal being voted on and the company’s stockholder base. In particular, this guide does not attempt to address considerations specifically applicable to public companies. Given these complexities, it is advisable to consult experienced counsel to help navigate legal and practical matters in advance of an annual meeting.