Coronavirus - Corporate Law Update
In light of the nationwide effort to slow the spread of COVID-19 through the implementation of social distancing, and the Centers for Disease Control and Prevention’s recommendations to avoid large gatherings and non-essential travel, the New Jersey State Legislature quickly took up a bill (A-3861) to permit New Jersey corporations to hold shareholders' meetings in part or solely by means of remote communication during a state of emergency declared by the Governor. The General Assembly passed the bill by a 64-0 vote on March 16, 2020, and the New Jersey Senate followed suit on March 19, 2020, with a 34-0 vote. On March 20, 2020, Governor Phil Murphy signed this bill into law with immediate effect.
Prior to this, the New Jersey Business Corporation Act permitted corporations to allow shareholders to participate in shareholders’ meetings by means of remote communication only to the extent the board of directors of a corporation authorized such participation, but such meetings were still required to be held at a physical location. Under the new law, so long as the board of directors authorizes and adopts guidelines and procedures governing such a meeting, a meeting of shareholders may be held during a state of emergency solely by means of remote communication. Shareholders participating in such a meeting shall be deemed present in person and entitled to vote at such meeting, regardless of whether the meeting is held at a designated place or solely by means of remote communication. The corporation is also required to implement reasonable measures in connection with any shareholders’ meeting conducted in part or solely by means of remote communication to (i) verify that each person participating remotely is a shareholder or proxy of a shareholder, (ii) provide each shareholder participating remotely with a reasonable opportunity to participate in the meeting, and (iii) record and maintain a record of any shareholder votes or other actions taken by remote communication at the meeting.
Riker Danzig’s Governmental Affairs Group, led by Mary Kay Roberts, was instrumental in the quick passage of this bill through the Legislature. This new law gives New Jersey corporations greater flexibility in how they hold their shareholders’ meetings during a state of emergency, providing broader accessibility to shareholders and allowing for the continuity of business during such critical times.
For New Jersey corporations whose bylaws do not give them the flexibility to take advantage of the new law, bear in mind that the New Jersey Business Corporation Act (and the New Jersey Nonprofit Corporation Act) already permits the adoption of “emergency bylaws” to address emergency circumstances. Although the relevant provision is explicitly limited to emergencies “resulting from an attack on the United States or any nuclear or atomic disaster,” Governor Murphy’s comparison of the present situation to a “war” suggests that this provision is now operative.
For corporations organized under Delaware law, shareholder meetings solely by means of remote communication are already permitted. Also, Delaware’s provision on emergency bylaws already applies to “any catastrophe, or other similar emergency condition.” Directors and officers of New York corporations should discuss with counsel whether meetings via remote communication and emergency bylaws are options for their businesses.
If you have any questions about the new law, or any other questions regarding the impact of the current crisis on the governance of for-profit and nonprofit corporations and other business entities, feel free to reach out to Jason Navarino or Christine Restrepo in Riker’s Corporate Group.
Please visit Riker Danzig’s COVID-19 Resource Center to stay up to date on all related legal issues.