Using electronic communication, whether email, text message or tweets, has become so commonplace in our society that most people don’t give it a second thought. But when it comes to using electronic communication in a corporate context to communicate among a company’s board of directors or stockholders, it pays to give the subject adequate attention. Ensuring that your corporate documents allow you the flexibility to communicate electronically with these constituencies will prevent communication logjams and help to facilitate efficient disclosure of information in an expedient manner.
The Delaware General Corporation Law (DGCL) allows for the use of electronic communication in a number of different corporate contexts, such as the following:
- Stockholder meetings. Section 211 allows stockholder meetings to be held entirely by remote communication, without a physical location, if the company’s board of directors so determines. Further, Section 211 authorizes stockholder participation, presence and voting by “remote communication,” if the corporation implements certain procedures and complies with certain statutory requirements. These requirements are discussed further below.
- Section 232 provides that a notice from the company to a stockholder by means of electronic transmission is effective if the stockholder has consented to receive notices through that particular form of electronic transmission (which consent may be later revoked).
- Stockholder Consents. Section 228 permits the use of electronically transmitted consents and the circumstances by which the consent would be deemed to be in writing, dated, signed and delivered to the company.
- Director Actions. Section 141 permits director resignations and actions by consent to be submitted or taken by electronic transmission.
- Stockholder Lists. Section 219 allows the stockholder list to be made available on an electronic network or at the company’s principal place of business and requires the list to be available via electronic network in the event of a stockholders’ meeting held without physical location.
Delaware also provides guidance as to what is encompassed by the term “electronic transmission.” The term means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient and may automatically be reproduced in paper form, including fax and email communications.
So, what do you need to do?
There are specific actions that companies can and should take, out of the gate, to ensure that they can take advantage of the electronic transmission provisions of the DGCL. They include:
When drafting Bylaws, make sure that they include express provisions allowing for electronic board meeting attendance (and what that means specifically), execution of consents and similar Board action by electronic means, and receipt of notices via email or other electronic means.
Stockholder Agreement. Same rules apply here as with your Bylaws. Make sure that there are provisions in your Stockholder Agreement where your stockholders expressly agree and consent to receive various notices from the Company by electronic means. Further, include provisions that make it clear that stockholder consents can be executed and returned electronically. To ensure that there is no confusion as to whether a communication is actually coming from your stockholder (since it can be difficult to ascertain identity in cyberspace), consider adding email addresses to any exhibits/appendices that set forth stockholder address and contact information. Having the correct contact information will create a comfort level for the company, knowing that consents and notices are getting to or coming from the right person.
Board Minutes. Similar to the advice above in the stockholder context, make sure you take the time at a Board meeting to confirm the correct email address for each director (to be noted in the formal minutes) and that consents and other approvals may be coming from that address so that there is no question about validity and identity. And as always, make sure the Board resolutions or minutes are kept as part of your formal corporate record. Further, to the extent you want to utilize text messaging to allow directors to evident consent or authorization, make this explicit in your Board minutes.
A Note about Social Media
One final item to note, with respect to Twitter, Facebook and other social media sites: remember that any information about your company that you post is equivalent to issuing a press release or other public disclosure. As such, that disclosure, especially in the context of any offering of securities or raising capital, could have serious legal ramifications, especially in the area of securities laws. Before you tweet to your followers about the latest and greatest news coming out of your company, run a quick check with your legal advisor to make sure you don’t inadvertently run afoul of existing law.