As Maryland corporations navigate this year’s proxy season, many have come face-to-face with the COVID-19 pandemic. The social distancing requirements related to the pandemic will often deter—or prevent—in-person stockholder meetings. At the same time, there is disinformation circulating regarding the availability of virtual stockholder meetings under Maryland law. Here are the key points:

• If the bylaws authorize the board of directors to determine the place of a stockholder meeting, Maryland corporations may cause a stockholder meeting to be held as a virtual meeting.
• While Maryland law requires that a Maryland corporation make a physical location available upon demand from a stockholder of record, that requirement can be satisfied by providing a location to dial-in or log-on to the virtual meeting. No directors or officers need to be present at the location and the virtual meeting is not impacted.
• If a Maryland corporation has already noticed an in-person meeting, there are two “safe” methods to convert an in-person meeting to a virtual meeting: (1) file a proxy supplement or other notice informing stockholders that the in-person meeting will be changed to a virtual meeting as the corporation intends to convene and immediately adjourn the meeting to the virtual format; or (2) mail an amended notice changing the meeting to a virtual meeting and, if necessary, file a proxy supplement in relation to the same. Both of these methods satisfy Maryland law. Although it requires a brief convening of the meeting and immediate adjournment, the first option avoids the expense of a mailing.

We expand on these concepts below.

Virtual Stockholder Meetings Under Maryland Law.

Under the Maryland General Corporation Law (MGCL), a Maryland corporation’s board of directors may determine where and how stockholder meetings are held, unless the charter provides otherwise (few charters provide otherwise). If the board of directors is authorized to determine the place of a meeting of the stockholders, the board may determine that the meeting not be held at any place, but instead may be held solely by means of remote communication. Stated otherwise, absent an unusual provision in the charter or bylaws of a Maryland corporation, its board of directors has the power to determine that a stockholder meeting be a virtual meeting.

Some of our clients have asked about a 2018 Broadridge Financial Services, Inc. (“Broadridge”) White Paper released by the Best Practices Committee for Shareowner Participation in Virtual Annual Meetings. Broadridge states that “Maryland, while allowing virtual shareowner meetings, impose[s] conditions that make them impractical or unrealistic.” We disagree. While Section 2-503 of the MGCL requires the boards of directors, “[a]t the request of a stockholder [of record] … [to] provide a place for a meeting of the stockholders,” that requirement does not render virtual stockholder meetings “impractical or unrealistic.” Instead, the provision merely requires a board of directors to provide a physical location for requesting stockholders to dial-in to the meeting or otherwise view the meeting webcast. The required physical location can be any location permitted by the charter and bylaws of the corporation, and no directors or officers are required to appear at the location.

Finally, as a practical matter, a request for a physical location must be made by a stockholder of record or its proxy; accordingly, it is uncommon to receive such a request.

Conduct of Virtual Stockholder Meetings

There are three requirements for the conduct of virtual stockholder meetings under Maryland law:

• The corporation must implement “reasonable measures to verify that each person considered present and authorized to vote at the meeting by means of remote communication is a stockholder or proxy holder.”
• The corporation must implement “reasonable measures to provide the stockholders and proxy holders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders.” This includes “an opportunity to read or hear the proceedings of the meeting substantially concurrently with the proceedings.”
• If stockholders or proxy holders vote or take other action at the virtual stockholder meeting, the corporation must maintain “a record of the vote or other action.”

Commonly used virtual meeting software typically satisfies those requirements.

Virtual Stockholder Meetings: Notice and the Proxy Statement

Maryland corporations provide the required notice of a virtual stockholder meeting through their proxy statements in two main ways: (1) provide notice that the stockholder meeting will be a virtual meeting with details of how to access the virtual meeting; or (2) provide notice that the stockholder meeting will be a virtual meeting with details of how to access the virtual meeting and proactively disclose that, upon request from a stockholder of record, a disclosed physical location will be utilized to access the virtual meeting. The second option, while requiring that the corporation determine a physical location in advance of any demand for the same, has the benefit of avoiding any further notice or communication to stockholders. Additionally, the second option facilitates disclosure that directors and officers will not be present at the physical location. The first option, on the other hand, requires that the corporation react if a stockholder requests a physical location. Further, we advise Maryland corporations to require that any stockholder of record submit a request for a physical location in writing and require that the stockholder of record register in advance.

What if a Maryland corporation has already filed its proxy statement and now wants to change to a virtual meeting?

In light of the rapidly evolving COVID-19 situation, the Securities Exchange Commission (SEC), on March 13, 2020, released guidance directed to corporations that have already filed their definitive proxy statements. As provided, the SEC “will take the position that an issuer that has already mailed and filed its definitive proxy materials can notify [stock]holders of a change in the date, time, or location of its annual meeting without mailing additional soliciting materials or amending its proxy materials” as long as the issuer performs the following three actions:

1. Issue a press release announcing such change.
2. File the announcement as definitive additional soliciting material on EDGAR (i.e., Form DEFA14A).
3. Take all reasonable steps necessary to inform other intermediaries in the proxy process (i.e., proxy service provider) and other relevant market participants (i.e., the appropriate national securities exchanges) of such change.

The Guidance specifically addresses virtual stockholder meetings and states that “[t]o the extent an issuer plans to conduct a virtual or hybrid meeting, the staff expects the issuer to notify its [stock]holders, intermediaries in the proxy process, and other market participants of such plans in a timely manner and disclose clear directions as to the logistical details of the virtual or hybrid meeting, including how [stock]holders can remotely access, participate in, and vote at such meeting.” This guidance has led Maryland corporations to ask about the requirements under state law.

If a Maryland corporation has already noticed an in-person meeting, there are two “safe” methods to convert an in-person meeting to a virtual meeting: (1) file a proxy supplement or other notice informing stockholders that the in-person meeting will be changed to a virtual meeting as the corporation intends to convene and immediately adjourn the meeting to the virtual format; or (2) mail an amended notice changing the meeting to a virtual meeting and, if necessary, file a proxy supplement in relation to the same. Both of these methods satisfy Maryland law. Although it requires a brief convening of the meeting and immediate adjournment, the first option avoids the expense of a mailing. We are also aware that some Maryland corporations will follow the first approach without formally convening and adjourning the meeting in light of the current environment. It may be a practical impossibility or even prohibited by law because of the COVID-19 situation. We cannot fault clients for choosing that approach under the circumstances.

Practical Considerations and Virtual Meetings

For entities that are organized under the Maryland REIT Law, the statute does not provide as much guidance as the MGCL. Nonetheless, we follow an analysis similar to what is described above, but subject to a Maryland REIT’s declaration of trust and bylaws, including provisions therein regarding notices of meetings, and try to get to a practical result that addresses the needs of the entity and its shareholders.

There are numerous other practical considerations that a Maryland corporation or Maryland REIT will need to navigate in relation to a virtual meeting. For those corporations pursuing special meetings, such as the approval of a merger or other extraordinary transaction, we advise caution and the most conservative approach. Please do not hesitate to contact us.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.