Online Shareholder Meetings: Corporate Law Anomalies or the Future of Governance?

By Birnhak, Daniel Adam | Rutgers Computer & Technology Law Journal, Summer 2003 | Go to article overview

Online Shareholder Meetings: Corporate Law Anomalies or the Future of Governance?


Birnhak, Daniel Adam, Rutgers Computer & Technology Law Journal


I. INTRODUCTION

Individual shareholders with a small stake in corporations rarely attend annual shareholder meetings. (1) Whether they are reluctant to spend the time and money to travel to the meetings, or they believe that their presence is unlikely to impact the proceedings, the reasons for shareholders' lack of participation are debatable. (2) Large individual shareholders and institutional investors thus tend to comprise most of the audience at annual shareholder meetings. (3)

In 2000, Delaware changed its shareholder meeting statute to permit corporations to hold their annual meetings solely on the Internet. This Note analyzes the amended statute, the current technical feasibility of online shareholder meetings, and their future viability.

Part II of this Note discusses the background corporate theory behind the shareholder/director relationship and shareholder meetings in general; Part III analyzes Delaware's stockholder meeting statute prior and subsequent to the 2000 revision; Part IV examines the current state of technology involved in online meetings; Part V surveys corporations that have used the Internet for their shareholder meetings; Part VI recounts Massachusetts' failed attempt at allowing corporations incorporated in that state to hold their stockholder meetings online; and Part VII provides some conclusions regarding the future of companies using the Internet as a forum for their shareholder meetings.

II. BACKGROUND CORPORATE THEORY

A. The Shareholder/Director Dichotomy and Shareholders' Rights

The corporate form embodies a dichotomy between shareholders and directors. (4) Shareholders, the providers of money capital, (5) own the corporation. (6) Yet, despite their ownership interest, shareholders elect a board of directors to oversee their investment. (7) This division between financers and managers works well because it "creates an investment vehicle for raising large amounts of capital and operating large enterprises." (8)

Shareholders' rights are contractual in nature; they arise out of a corporation's "charter, articles of incorporation, bylaws, provisions of the stock certificate, and pertinent statutes." (9) By virtue of their investment, shareholders have "[the] right to share in the management of the corporation (right to vote)...." (10) Traditionally, shareholders exercise their management rights either by voting at shareholder meetings where they are physically present or by proxy voting. This Note addresses a key change in the physical presence requirement. (11)

B. Shareholder Meetings

Shareholder meetings generally are held for "business [that] requir[es] the action or consent of the shareholders." (12) Both state law and corporate bylaws dictate their location. (13) The two types of shareholder meetings are annual meetings and special meetings. (14)

State law usually requires that corporations hold annual shareholder meetings. (15) Corporate bylaws dictate the time for annual meetings, which often occur in the spring. (16) The most important item on an agenda is often the election of directors, but other activities are permitted as well. (17) For instance, reports may be read, corporate matters may be discussed, and resolutions may be introduced. (18) Also, bylaws occasionally are amended or repealed. (19)

Special meetings, on the other hand, are conducted at any time between annual meetings. (20) They may only be called for "appropriate purposes." (21) Furthermore, the corporation must adhere to its agenda, unless the voting shareholders and proxy holders consent otherwise. (22)

Shareholder meetings are invalid unless attended by a required number of people. (23) This requisite number, known as a quorum, is "regulated by statute, charter, or bylaws...." (24) Unless a provision provides otherwise, both shareholders and non-shareholders may be counted for purposes of establishing a quorum. …

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