As the COVID-19 pandemic continues, boards of directors for Wisconsin corporations are confronting conflicting duties: Boards need to provide an annual meeting of the corporation’s shareholders, but they must also try to keep shareholders safe while attending the meeting. These conflicting duties inevitably raise the question of whether a virtual meeting of the corporation’s shareholders is legally permissible.
Wisconsin Business Corporation Law
The Wisconsin Business Corporation Law (WBCL) has not historically provided for virtual shareholder meetings. However, several sections of the WBCL were amended in 2017 with regard to remote shareholder meetings.1 Wisconsin statutes now allow a corporation’s board of directors to hold virtual shareholder meetings.2
Pursuant to the WBCL, Wisconsin corporations are required to hold shareholder meetings on an annual basis at a time specified in, or set in accordance with, the bylaws of the corporation.3 This meeting may be held inside or outside of Wisconsin, and the location may be stated in or set by the bylaws.4 A Wisconsin corporation must notify shareholders of the date, time and place of annual or special shareholder meetings no less than 10 and no more than 60 days prior to the date of the meeting.5
Peter S. Trotter, University of Illinois 2000, is vice president and general counsel of Mason Companies, Inc., an e-commerce company in Chippewa Falls that offers diverse products and financing to consumers.
As a result of the 2017 amendments to the WBCL, a Wisconsin corporation’s bylaws may authorize the corporation’s board of directors to determine that the annual meeting may be held solely by means of remote communication.6 Wisconsin statutes also allow remote meetings to be held in the case of special shareholder meetings called by the board of directors or shareholders, as well as in the event of court-appointed shareholder meetings.7 The WBCL further provides that, if authorized by the board of directors, and subject to board-adopted guidelines and procedures, a Wisconsin corporation’s shareholders and their proxies not physically present at a shareholder meeting may participate in the meeting by remote communication.8
Shareholders must be informed that a remote meeting will be held, using the WBCL’s established notice procedures. In the event that the corporation’s board of directors has authorized a shareholder meeting using remote communication, the notice required by the WBCL must state the means of remote communication.9
A shareholder of a Wisconsin corporation is deemed present in person and able to vote at a virtual shareholder meeting if the corporation implemented reasonable identity verification procedures ensuring that each person deemed present and able to vote by remote communication is a shareholder of the corporation or an authorized proxy of a shareholder.10
The corporation should also have implemented reasonable measures to ensure that shareholders and their proxies have the opportunity to participate in the meeting and to vote, including the opportunity to hear and read proceedings.11 Under the WBCL, shareholders have the right to know certain information about other shareholders that is included in a shareholder list created by the corporation, and shareholders should have access to the shareholder list throughout the virtual meeting on a reasonably accessible electronic platform.12 In addition, the corporation should maintain a record of voting and action by any shareholder or proxy that votes or takes action during the meeting by remote communication.13
In addition to specific requirements for virtual shareholder meetings described in the WBCL, the statute empowers and obligates the chairperson of the corporation’s board of directors to manage the meeting in an appropriate manner. Pursuant to the WBCL, the chairperson of the corporation’s board of directors presides over shareholder meetings and is ultimately responsible for determining rules of conduct and other aspects of shareholders meetings that ensure fairness in the interest of all shareholders.14
Wisconsin Department of Financial Institutions Guidance
In addition to statutory authority for virtual shareholder meetings established in the 2017 amendments to the WBCL, the COVID-19 coronavirus pandemic spurred guidance from the Wisconsin Department of Financial Institutions.
The department confirmed that holding a virtual annual meeting of shareholders is permissible during the current pandemic.15 The department justified this position by explaining that holding an annual meeting remained a statutory requirement, but in-person meetings were not essential, and it would be absurd for the state to require in-person meetings during the current environment.16 However, the department noted the need to conform to recordkeeping requirements, and to ensure the protection of shareholder rights granted by Wisconsin statutes and corporate bylaws.17
U.S. Securities and Exchange Commission Guidance
Wisconsin corporations that are publicly traded are required to comply with the Securities Exchange Act of 1934, including the proxy rules created by the United States Securities and Exchange Commission (SEC) pursuant to that statute.18
While the ability to conduct a virtual meeting is governed by state law, the SEC’s position on virtual meetings is important for public companies seeking to hold a virtual meeting in compliance with both state requirements and the SEC’s proxy rules.19 The SEC’s position is that disclosures ensuring informed shareholder voting are necessary with regard to virtual meetings, as would be the case with in-person meetings.20
Corporations should notify shareholders and other participants of plans for virtual meetings in a timely manner, and provide clear information on the logistical details for participation in the meeting, including how shareholders can remotely access, participate, and vote in the meeting.21 This information should be in the Proxy statement, if not already filed.22
If the Proxy statement has been filed, the Proxy statement can be amended, and the amended Proxy statement should be filed and redistributed to shareholders, or notice can be provided in a press release that is distributed and filed in compliance with SEC requirements.23 Shareholder proposals are also encouraged by remote communication, rather than in person.24
Conclusion: Formal Action Needed
A Wisconsin corporation can conduct a virtual annual meeting of its shareholders, so a corporation’s board of directors can resolve the conflict between its duty to hold a shareholder meeting and its responsibility to do so safely.
The board should take formal action to authorize the meeting, and the board should also consider amending the bylaws of the corporation to specifically provide for virtual shareholder meetings.
The corporation should comply with the WBCL, as well as guidance provided by the Wisconsin Department of Financial Institutions and the SEC in preparing for and holding a virtual shareholder meeting.
In particular, notice of the meeting should be legally compliant and reasonably informative to shareholders; technology utilized should be appropriate for the requirements of the meeting; and the chairperson of the board should ensure legal compliance and fairness to all shareholders in the operation of the meeting.
This article was originally published on the State Bar of Wisconsin’s Business Law Blog. Visit the State Bar sections or the Business Law Section web pages to learn more about the benefits of section membership.
Endnotes
1 2017 Wisconsin Act 79.
2 Ryan Morrison and Matthew Vogel, Wisconsin Law Now Permits “Virtual” Shareholder Meetings, Quarles & Brady News & Resources, Nov. 11, 2017.
3 Wis. Stat. section 180.0701(1).
4 Wis. Stat. section 180.0701(2)(a).
5 Wis. Stat. section 180.0705(1).
6 Wis. Stat. section 180.0701(2)(b).
7 Wis. Stat. section 180.0702. Wis. Stat. section 180.0703.
8 Wis. Stat. section 180.0709(1).
9 Wis. Stat. section 180.0705(1).
10 Wis. Stat. section 180.0709(2)(a).
11 Wis. Stat. section 180.0709(2)(b).
12 Wis. Stat. section 180.0720(3).
13 Wis. Stat. section 180.0709(3)(c).
14 Wis. Stat. section 180.0708(2).
15 Emergency Guidance on Annual Meeting Requirements for Entities Formed Under Statutes Administered by the Wisconsin Department of Financial Institutions, Wisconsin Department of Financial Institutions, April 3, 2020.
16 Id.
17 Id.
18 David P. Hooper and Lynne M. McMahan, Conducting Virtual Shareholder Meetings – SEC Guidance, State Law Considerations, The National Law Review, March 27, 2020.
19 Id.
20 Staff Guidance for Conducting Shareholder Meetings in Light of COVID-19 Concerns, U.S. Securities and Exchange Commission, April 7, 2020.
21 Id.
22 Id.
23 Id.
24 Id.
