COVID-19 has forced your business or non-profit to work remotely. You’ve decided to convene your next board meeting as a virtual meeting. Don’t skip the crucial first steps: reviewing and amending your Articles of Incorporation and Bylaws.
In our last post, we walked through the first thorough examination of state law to determine whether it was even legal to hold a virtual meeting. It appears that state governments have gotten this right and updated their statutes during the past 20 years to explicitly permit remote and virtual meetings.
What’s the Difference Between Articles of Incorporation and Bylaws?
Even though they sound like the same thing, they are not.
- The Articles of Incorporation include general details about your organization and define its foundational principles.
- The Bylaws spell out the detailed rules and procedures for managing the organization.
Let’s look at your Articles of Incorporation first.
The Crucial First Step: Review Your Articles of Incorporation
If you looked carefully at our comprehensive report of state laws authorizing remote meetings, you were probably struck by their uniformity. Each one is prefaced “Unless otherwise restricted by the articles of incorporation or bylaws…”
It’s likely your Articles of Incorporation are silent on remote meetings. Articles tend to focus on information like ownership, location, and distribution of shares. Often, they also contain a provision granting the board of directors the authority to amend the bylaws.
This is crucial. Your Articles of Incorporation should
- Explicitly grant the ability to conduct remote board & committee meetings
- Be silent on the matter of remote and virtual meetings
- Provide the board authority to amend the bylaws.
Obviously, if the Articles of Incorporation forbid remote voting, you’ll need to amend that first. However, many states (including Delaware, where more than 50 percent of U.S.-based public corporations are incorporated) confer authority to amend bylaws to the Shareholders rather than the board of directors. Your organization’s Articles of Incorporation might explicitly provide the board that authority, but it’s something you will need to check first.
If your articles forbid remote meetings or are silent on the board’s authority to amend the bylaws – you’ll want to consult a lawyer first. If your articles are silent on remote meetings and your board has the authority to amend the bylaws – the far likelier scenario – you should be free to proceed. Given how commonplace remote work is today, though, it’s unlikely there would be significant resistance to these changes.
The Next Crucial Step: Review Your Bylaws
Bylaws explain who has authority over what and under what circumstance. It’s the who, what, when, where, why of corporate governance. Delaware’s legal definition of bylaws is: The bylaws may contain any provision, not inconsistent with law or with the certificate of incorporation, relating to the business of the corporation, the conduct of its affairs, and its rights or powers or the rights or powers of its stockholders, directors, officers or employees.
If your board of directors has the authority to amend the bylaws, reviewing this document is the final step toward ensuring you can conduct and do business remotely.
When reviewing your bylaws, there are four possible scenarios that will emerge.
- Your bylaws are silent on remote and virtual meetings.
Double-check our comprehensive survey to verify your state’s laws. It’s a near certainty, though, that your board is already in the clear to conduct remote meetings.
- Your bylaws already permit remote meetings.
The language will likely look strikingly similar to state statutes, permitting “directors or any committee designated by the board to participate in a meeting of such board, or committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other…”
- Your bylaws prohibit remote meetings.
You may find language that imposes a blanket ban: “Remote participation in board meetings is prohibited.”
- Your bylaws prohibit remote meetings under some circumstances.
You may find your bylaws allow remote participation, but only on a conditional basis. “A member may attend a meeting and participate in board deliberations and decisions by remote participation if the member is prevented from physically attending the meeting due to: personal illness or disability, out-of-town travel, unexpected lack of child-care, family member illness or emergency; weather conditions, military service, employment obligations, or a scheduling conflict.”
If your bylaws prohibit remote meetings or are unreasonably restrictive, it’s time to draft an amendment to the bylaws. This is fairly straightforward and simply needs approval by the board to change.
How to Amend the Bylaws
The document filing service CorpNet has an excellent template for filing an amendment to your bylaws and getting it on your next board meeting agenda.
Your amendment could be as simple as striking the prohibitions and allowing the organization to simply defer to the state law authorizing remote meetings. You can also be explicit, amending your bylaws to allow remote meetings. Here are some examples:
- The board authorizes remote participation consistent with the requirements of this policy.
- Acceptable means of remote participation include telephone, Internet, or satellite-enabled audio or video conferencing, or any other technology that enables the remote participant and all people present at the meeting location to be clearly audible to one another.
- Text messaging, instant messaging, email, and web chat without audio are not acceptable means of remote participation.”
With the amendment filed, you’ll need to secure a majority vote by the board of directors to approve it. Then you’re done. You can now have remote meetings.
We sincerely hope that this entire section is unnecessary and that your board already permits remote meetings or simply deferred to the law. But if you need to change the rules and procedures of your board, we hope these recommendations are useful. it should be an easy sell.
What is a Quorum in a Virtual Meeting?
Most states dictate the number of members that need to be in attendance to start a meeting. Yet, the law ultimately leaves the definition of quorum up to each individual organization, permitting them to change the number in their bylaws.
For example, Delaware quorum law states that“… a majority of the total number of directors shall constitute a quorum for the transaction of business unless the certificate of incorporation or the bylaws require a greater number.”
Our comprehensive report of state laws revealed that each state has considered and authorized virtual meetings. Any concern about virtual meetings and quorum should be evaluated and discussed while examining the Articles of Incorporation and Bylaws.
- Verify that your organization doesn’t define the quorum as members physically present or specifies a specific place a director needs to be located in to be counted.
- If it does, you’ll need to file an amendment alongside any other changes being made for virtual meetings.
- We suggest using simple language such as “A majority of the directors in attendance, whether in person or remotely, of the board of directors or on a subcommittee of a committee shall constitute a quorum.”
Of course, the standard disclaimer applies: if you have serious questions about where you stand legally, it’s always best to consult your legal counsel and get the official thumbs up.
About The Author
- At OnBoard, we believe board meetings should be informed, effective, and uncomplicated. That’s why we give boards and leadership teams an elegant solution that simplifies governance. With customers in higher education, nonprofit, health care systems, government, and corporate enterprise business, OnBoard is the leading board management provider.
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