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Alert – Assembly Bill 663 Provides Flexibility for Corporate Governance

October 21, 2021

With the onset of shelter-in-place orders and restrictions on travel and gatherings imposed as a result of the COVID-19 pandemic, it has become evident that certain provisions of the Corporations Code relating to the governance of California corporations have not kept pace with technological advances, specifically, the ability to conduct meetings remotely via video conference platforms. In response to this situation, on October 5, 2021, Governor Newsom signed into law Assembly Bill 663, which amends certain provisions of the Corporations Code relating to the manner in which shareholder and member meetings may be conducted. These changes in the law appear to have taken effect immediately upon the Governor’s signing of the bill.

AB 663 amends the General Corporation Law and the Corporations Code provisions relating to Nonprofit Public Benefit, Mutual Benefit and Religious Corporations and Cooperative Corporations. It will allow California corporations and the opportunity in non-emergency circumstances to conduct shareholder and member meetings using current technology by permitting remote participation (including telephonic participation), while preserving the ability of shareholders and members to attend a meeting in person if they want to do so by requiring a meeting to be “hybrid” (i.e., also have a physical location), unless all shareholders or members consent to a completely “virtual” meeting.

In the event of an emergency, a corporation may use available technology for conducting shareholder or member meetings solely in a “virtual” venue, without the requirement for unanimous shareholder or member consent, when remote participation is the only realistic means available to the corporation for doing so. In any such situation, a corporation opting for a “hybrid” or “virtual” meeting will be required to provide remotely participating shareholders, proxyholders or members a reasonable opportunity to participate in and vote at the meeting, to record votes taken by remote communication and to verify that persons participating in the meeting are shareholders, proxyholders or members. The definition of an “emergency” has also been expanded, and the board of directors has been provided greater leeway in governing during an emergency. However, the new law does not specifically authorize “virtual” or “hybrid” meetings for board of directors meetings.

Prior to these changes, corporations who encountered a need to hold remote or partially remote meetings would be required to, for example, circulate written consents to all shareholders or members, in an attempt to authorize the use of a meeting procedure that was not specifically authorized in their Bylaws or the Corporations Code. This change in the law will provide needed flexibility to corporations in both emergency and non-emergency circumstances.

If you have questions or would like further information regarding corporate governance, please do not hesitate to contact us.

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2033 N Main Street
Suite 720
Walnut Creek, CA 94596
P 925.944.9700   F 925.944.9701