Operating an Efficient Corporation in Virginia: Why You Need Annual Corporation Meetings
Although many busy corporations (especially small and mid-size firms) view annual corporation meetings as an inconvenient formality, holding annual meetings in Virginia is both a legal requirement of corporate governance and a beneficial tool to effectively manage the corporation’s affairs. To efficiently address business issues and prevent the liability protections of the corporate entity from being “pierced” in litigation, it is important that corporations take the time to properly hold and record all required meetings.
The Basic Requirements of Annual MeetingsVirginia Stock Corporation Act (VSCA) Section 13.1-654, generally requires Virginia corporations to hold an annual meeting of its shareholders. Typically, the purpose of these meetings is to elect the directors of the corporation and “to transact any other business that properly comes before the meeting.” Generally, the annual meeting must be held at the time and location as stated in the corporation’s bylaws, which usually means at the corporation’s headquarters. Shareholders do not have to be present in person at the meeting – they can appoint a proxy to vote their shares, or they may participate by teleconference or videoconference, or use “any means of communication by which all shareholders participating may simultaneously hear each other during the meeting.” Under certain circumstances, such as the failure to hold an annual meeting for a 15-month period, a court can require that a corporation hold a shareholder meeting.
Board of Directors’ Meeting
For efficiency, many corporations hold a meeting of the corporation’s board of directors immediately after the annual shareholders’ meeting to perform corporate “housekeeping,” such as appointing the officers of the corporation, declaring dividends, approving contracts that the corporation has entered into since the last meeting of the directors, or ratifying other extraordinary acts of the corporation (e.g., issuances of stock, options or other securities, material acquisitions or dispositions of assets, charter amendments, etc.). Rules governing directors’ participation in these meetings are similar to that of shareholder meetings.
It is important to review the corporation’s bylaws, which every Virginia corporation is required to maintain under VSCA Section 13.1-624, to determine when, where and for what purpose(s) annual meetings are to be held. Many corporations require more frequent meetings of their boards of directors, and there are studies that link profitability and reduced compliance exposure to the practice of holding regular corporate meetings.
Proper Meeting Procedures
In addition to determining when and where to hold annual meetings, the corporation must also determine how to properly schedule and conduct such meetings. This process involves compliance with the requirements for setting the meeting, including maintaining accurate shareholder lists, identifying the shareholders or directors entitled to notice of the meeting, and sending (and recording) proper notices.
In addition, the corporation must do the following:
- properly set the agenda for the meetings
- entertain board and shareholder proposals
- run the meetings
- tabulate voting at the meetings
- record the meetings
Many of these critical requirements are clearly set forth in the VSCA, while others are set forth in a corporation’s bylaws. Other procedures have developed over time as “best practices.” Finally, depending upon the proposal to be approved at a meeting, various disclosure rules may also need to be met. For example, the SEC and listing exchanges often dictate what information is required to be disclosed to shareholders in a proxy statement. Also, the VSCA requires certain information to be disclosed to shareholders with respect to a merger proposal.
Tangible and Intangible BenefitsHolding regular annual meetings not only helps preserve the legal protections afforded by the corporate entity, but also benefits the corporation and its shareholders in many tangible and intangible ways, since it provides a forum for management to discuss the company’s operations and prospects with the equity holders, and affords shareholders the opportunity to take necessary actions. The compliance cost of holding such meetings is relatively negligible.
Holland & Knight lawyers assist corporations with the legal and administrative aspects of holding corporate meetings as well as providing counsel to corporate personnel and stakeholders on the substantive and unique issues important to each corporation’s success.