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Dubiety Clouds Gubernatorial Order Allowing Virtual-Only Shareholder Meetings

On Monday, Governor Newsom issued an executive order pursuant to California's Emergency Services Act, Government Code Sections 8567 & 8571.  The order is intended to provide tax, regulatory and licensing extensions for businesses.  The order also purports to suspend temporarily the apparent need for California corporations to obtain universal shareholder consent to hold a virtual-only shareholder meeting pursuant Corporations Code Section 600(e) (last sentence):

"For any shareholder meetings that already have been scheduled, or must occur before June 30, 2020, the requirements in Corporations Code sections 20 and 600 to request and receive the consent of shareholders for meetings of shareholders to be held by electronic transmission or by electronic video screen communication are hereby suspended, and the requirement in Corporations Code section 601 to provide written notice of such meetings is hereby suspended, to the extent that a corporation has provided notice to its shareholders that a meeting will occur at a physical location and subsequently provides notice by a press release, website posting and other means reasonably designed to inform shareholders that the meeting will occur by electronic transmission or by electronic video screen communication."

The fly in the ointment (see Ecclesiastes 10:1) is that the Governor may not have the statutory authority to suspend these requirements.  As I pointed out in this post, the Emergency Services Act gives the Governor the authority to suspend only two types of statutes: "regulatory statutes" or "statutes prescribing the procedure for the conduct of state business".   "Regulatory statute" is not defined and no one can say with certitude that the statutes purportedly suspended by the Governor are regulatory statutes.  Corporations that proceed with virtual only meetings based on the Governor's order will therefore necessarily be assuming the risk that actions taken at these meetings may be later invalidated.  Lawyers may want to take this into account if asked to provide a "due authorization" opinion based on shareholder action taken at such a meeting.

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...