Locke Lord QuickStudy: New York Business Corporations, Not-For-Profit Corporations and Religious ‎Corporations May Temporarily Hold Shareholder and Member Meetings via ‎Electronic Means During the Pandemic

Through December 31, 2020, New York business corporations and New ‎York Not for Profit corporations may hold virtual annual or special shareholder ‎and member meetings through electronic means. Recognizing Governor ‎Andrew Cuomo’s  Executive Orders banning large gatherings, and his ‎Executive Order 202.18 modifying Section 602(a) of the New York Business ‎Corporation Law (the “BCL”) and Section 603(b) of the Not-for-Profit ‎Corporations Law (the “NFPCL”), the NY State Senate and NY State Assembly ‎have passed bills permitting electronic meetings of shareholders and members. The bills have been sent to the Governor to sign, but have not as of yet become ‎law.‎

The new provisions are only effective “for the duration of the state disaster emergency declared by Executive Order two hundred two that began ‎on March seventh, two thousand twenty” and only if the board of directors of the ‎applicable corporation determines

‎“that meetings of members [or shareholders] be held partially or solely by ‎means of electronic communication.”‎

The Governor may extend the expiry date of the new law which currently ‎sunsets on December 31, 2020.  ‎

The bills have important limitations. The limitations provide:‎

‎“Meetings conducted partially or solely by means of electronic ‎communications in reliance upon this paragraph and any member’s electronic participation in such meetings shall be ‎subject to those guidelines and procedures as the board adopts, ‎provided the board shall implement reasonable measures to: (1) ‎verify that each person participating electronically is a member [or ‎shareholder] or a proxy of a member; (2) provide each member ‎‎[shareholder] participating electronically with a reasonable ‎opportunity to participate in the meeting, including an opportunity ‎to  propose, object to, and vote upon a specific action to be taken ‎by the members, and to see, read or hear the proceedings of the meeting substantially concurrently with those proceedings; and ‎‎(3) record and maintain a record of any votes or other actions taken ‎by electronic communication. “‎

An amendment to Section 708(b) of the BCL was also passed by the ‎legislature at the same time to permit execution “electronically” by Board ‎members of business corporations by “consents in writing.” The new provision is ‎similarly limited in duration and will expire December 31, 2020 unless extended ‎by the Governor. Board resolutions adopted electronically during this period by ‎New York business corporations will only be valid

‎“where such consent is submitted via electronic mail along with ‎information from which it can be reasonably determined that the ‎transmission was authorized by such member.”  ‎

Where previously many practitioners believed that faxes or attachments to ‎text messages or to emails forwarding copies of signed resolutions or electronic ‎signatures affixed to board or committee resolutions that were logically ‎associated with the resolutions were valid under the New York State ‎Technology Law (New York’s electronic signature law), the adoption of this ‎amendment to Section 708(b) may cause counsel to rethink what is meant by ‎‎“consent in writing” or by “electronic mail” in Section 708(b) after the Covid-19 ‎crisis abates. One would hope that a court would interpret the new Covid-19 ‎‎“temporary additions” and the Executive Orders issued by the Governor with ‎respect to written consents as merely made to clarify what was already the law ‎with respect to board actions and not a statement that faxed, emailed or ‎otherwise authenticated and logically associated copies of consents should not ‎be considered sufficient “writings” for purposes of the Business Corporation ‎Law prior to the 2020 emergency enactments.‎

The bills passed by the New York State Senate and New York State ‎Assembly also provide for changes to the provisions of The Religious ‎Corporations Law that deal with meetings of members to permit meetings to be ‎held solely by electronic means during the continuation of the Covid-19 ‎pandemic.‎

Each of the above amendments to the BCL, NFPCL and The Religious ‎Corporations Law provide that the amendments shall not apply if the applicable ‎Corporation’s certificate of incorporation or by-laws provide to the contrary. Accordingly, before relying on the amendments during the Covid-19 crisis ‎period, directors and officers must review the certificate of incorporation and by-‎laws governing the applicable entity and check to see if the sections discussed ‎above have been amended or interpreted by the courts to limit or expand the ‎meanings of the words used by the Governor or the legislature.‎

The New York Charities Bureau of the New York Department of Law has ‎issued two guidance documents for the Boards and officers managing ‎membership organizations governed by the Not-For-Profit Corporation Law and ‎Religious Corporations Law. The Guidance documents can be found at‎:

Guidance for Charitable Nonprofit Organizations Facing the Challenges of the ‎COVID-19 Pandemic (April 2020).  ‎

Guidance for Conducting Virtual Meetings of Members of New York Not-for-‎Profit Corporations (April 2020)‎.