United States: Delaware Law Brings The Internet To Boards

Article appeared in Sunday News Journal, Sunday, Dec. 3, 2000

Recent changes to the Delaware General Corporation Law have enabled corporations to enjoy the benefits of doing business through the Internet. For example, the annual shareholders’ meeting often had to take place at the corporation’s registered office in Delaware . Now under Section 211(a), the board of directors may, on its own, eliminate the need to hold a shareholders’ meeting in person and may conduct one online or by video conferencing .

This also could make it harder for stockholders to make loud objections and confront directors in person.

The corporate board also must adopt procedures to make certain that each shareholder is able to participate in the meeting and vote remotely. This includes the ability to hear or read proceedings substantially concurrently, perhaps in a way similar to instant messaging. The board must implement means to ensure the identity of participating stockholders

Hybrid meetings are allowed under the recent amendments, so that those present electronically will be counted for quorum and voting purposes along with those present in person. By allowing remote participation, for example through use of the Internet, stockholders will not be as limited by travel and time restrictions, thereby encouraging greater participation in shareholder meetings.

Election of directors can be done by electronic transmission of a ballot if the vote is sent with adequate assurances that it is authorized by the shareholder or proxy holder. However, these new provisions do not apply to non-stock membership corporations.

Written consent of shareholders in lieu of a meeting also is made easier by the amendments approved by the Delaware General Assembly. New section 228(d) now allows shareholders to confirm their written consent by e-mail. Moreover, the electronic transmission must include or be sent with some assurance that it was sent by the stockholder or person authorized to act for the stockholder as of the date of transmission.

The written consent’s date of transmission will be treated as the date that the consent would have been signed if it were in a traditional format. However, before the electronic consent will be effective, it must be printed in paper form and delivered to the corporation.

Notices to shareholders can now be done electronically; this is expected to generate substantial savings in cost and time. However, new Section 232 requires that before an electronic notice to a shareholder is effective, the shareholder must consent to receipt of the notice in that manner. The electronic notice is deemed given when directed to the electronic address given by the stockholder who consented to receive such notices. Notice by facsimile is also deemed given when directed to the number at which the shareholder agreed to accept such service. These notice rules also apply to non-stock membership corporations.

Written consents by boards of directors in place of a meeting in person can be given electronically also. Although absent a unanimous written consent of the board, the amendments do not allow board meetings to be conducted exclusively in an electronic format that does not provide sound. The reasoning is that in order for the board to fulfill its duties, the give-and-take of a meeting in which all persons can at least hear each other remains necessary.

The law rarely keeps pace with technology, but these amendments to Delaware law will allow corporations to take advantage of the Internet’s efficiencies.