Virginia Expands the Virtual Meeting Space, Allowing Nonstock Corporations to Hold Annual Meetings in Cyberspace

Trying to find a location for your annual shareholder meeting, but concerned about cost and picking a place that is convenient for and will be attended by most of your members?  Virginia lawmakers recently enacted legislation with the aim to address these problems for nonstock corporations grappling with the difficulty of getting member participation at their annual meetings.  The Virginia General Assembly, effective July 1, 2018, passed House Bill 1205, which amended the Virginia Nonstock Corporation Act, allowing nonstock corporations to conduct annual and special meetings of members via electronic means, provided their Articles of Incorporation and bylaws do not require the meetings to be held at a specific location.  This allows nonstock corporations to move their meetings from a physical boardroom to a virtual boardroom.

Allowing virtual meetings for corporations is not a new phenomenon.  Delaware amended its General Corporation Law in 2000 allowing stock corporations to conduct virtual shareholder meetings.  In the age of the convenience of the Internet, many corporations have begun utilizing virtual meetings to reduce costs for both the corporation and individual shareholders, while increasing shareholder participation and board of director control over the structure of the meeting, as board of directors can limit any or all member communication.  Since 2000, additional jurisdictions have also begun allowing corporations to use online real estate and conduct their meetings without any in-person attendance.  Virginia, however, is one of the first jurisdictions to expand the use of virtual meetings from stock corporations to nonstock corporations as well.

Nonstock corporations are corporations that generally do not have owners or members that share in the corporation’s profit and are formed with no intention of generating a return of income.  Examples of these types of corporations are organizations that have Internal Revenue Code Section 501(c) tax-exempt status, such as charitable, fraternal, political, religious, trade, or civil organizations.  Nonstock corporations are typically managed by a board of directors and members have voting rights, just not a right to corporate profits.  Similar to the concerns of stock corporations preferring virtual meetings over physical meetings, nonstock corporations are also concerned with cost, convenience and member participation.  For example, without a bylaw specifying what constitutes a quorum, Section 13.1‑849 of the Virginia Nonstock Corporation Act only requires 10% of members to meet a quorum.

Virginia’s latest expansion allowing nonstock corporations a virtual means to hold annual shareholder meetings versus the confines of a physical venue is likely an attempt to remediate these problems and increase member participation.  It should be noted, Virginia House Bill 1205 does not alter notice requirements for the annual meetings.  The amendment also requires the nonstock corporation to implement reasonable measures to (1) verify that each person remotely participating is a member or proxy, and (2) provide the members a reasonable opportunity to participate in the meeting, vote on matters, and to read or hear the proceedings of the meeting.

While there is still little guidance on how nonstock corporations should organize virtual meetings with their members, it is yet to be seen how many nonstock corporations begin conducting virtual meetings or how many other jurisdictions follow suit and expand the ability of nonstock corporations to conduct virtual meetings.  As the Internet and technology, however, continue to connect the way people communicate, so too could formal corporate mechanisms enter the cyber world to conduct business meetings with their members.

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