San Diego Corporate Formalities: Annual Shareholders’ Meetings

In San Diego and elsewhere in California, corporations are required to have an annual meeting of shareholders. For small companies, it may seem pointless and a waste of time. However, complying with corporate formalities is important. Remember that one of the main reasons to incorporate is to protect private assets with the corporate shield. However, failure to comply with such formalities is one basis for piercing the corporate veil. Shareholders want to avoid that.

San Diego Corporate Law: Read Your Bylaws

We have made it clear here at San Diego Corporate Law that corporate bylaws are very important and should be custom-drafted to meet your specific needs. Meetings of shareholders are another example of why bylaws are important: Bylaws establish the date and time for the annual meeting of shareholders and allow for various types of methods of attending.

San Diego Corporate Law: California Corporation Code

As noted, the California Corporation Code requires an annual meeting of shareholders to elect members of the Board. As to the place and time, the statute reads: “(b) An annual meeting of shareholders shall be held for the election of directors on a date and at a time stated in or fixed in accordance with the bylaws.” See Cal. Corp. Code, § 600(b). Thus, as stated, it is important to have your corporation’s bylaws custom-drafted so that a convenient date and time for the annual meeting can be established.

San Diego Corporate Law: Meetings of Shareholders May be Via Electronic Participation

The statute now allows the corporation to specify in the bylaws the method by which shareholders can attend. It used to be that a shareholder had to personally attend or “attend by proxy.” A proxy is a document giving another person to right to vote on issues at a meeting of shareholders. But, again, physical presence at the meeting was required.

Now, attendance may be electronic. Indeed, the whole meeting of shareholders ” … may be conducted, in whole or in part, by electronic transmission by and to the corporation or by electronic video screen communication …” According to Cal. Corp. Code §§ 600(a) and (e) and 601(a), in order to hold the meeting electronically, these conditions must be satisfied:

• The board of directors must authorize electronic meetings
• The bylaws must not prohibit electronic meetings
• All shareholders participating electronically must be able to reasonably participate in the meeting and to vote on matters submitted to the shareholders, including an opportunity to read or hear the proceedings of the meeting concurrently with those proceedings
• Records must be maintained of any and all votes or other actions taken including votes and actions taken by those participating electronic transmission
• Certain consents must be obtained
• The notice of meeting shall indicate the method as electronic participation

In practice, the annual meeting of shareholders is both a physical meeting and electronic participation of one or more members. The physical location can be “… held at any place within or without this state as may be stated in or fixed in accordance with the bylaws.” Cal. Corp. Code, § 600(a) linked above. The statute specified that the physical location shall be “at the principal executive office of the corporation” if no other place is set out in the bylaws.

Contact San Diego Corporate Law

For further information, please contact Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard has the experience to help you properly maintain your San Diego corporation including drafting or redrafting your bylaws to the specific and unique needs of your corporation, calling and running annual and special meetings, and assisting with any other business-related legal matter. Contact Mr. Leonard by email or by calling (858) 483-9200.

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