COVID-19 has presented corporations with never-before-seen obstacles due in part to social distancing requirements, which have disabled directors and shareholders from meeting. Now is the time to update your corporate bylaws to allow your board to continue to operate during this global pandemic!
In January of 2014, the Corporations Committee of the California State Bar, spearheaded adding new provisions to the California Corporations Code to provide some flexibility in corporate governance during a state of emergency. The Corporations Code was amended in three important ways.
First, an article was added to acknowledge that bylaws may contain provisions to manage and conduct ordinary business during an “emergency,” such as COVID-19. The Code allows for bylaws to be amended to allow the board of directors to continue operations with special rules for calling board meetings and designating additional or substitute directors, if some directors are unavailable to participate.
Second, the California Corporation Code allows corporations to amend the lines of succession in the event of incapacity of a director, officer, employee or agent of the corporation, resulting from crises such as the COVID-19 emergency.
Third, corporations may give notice to directors of board meetings in any practical manner, when notice cannot be given as otherwise required by the bylaws or by the Code. If necessary, corporations may also deem that one or more officers present is a director, in order to achieve a quorum.
The Code does not, however, eliminate the requirement of shareholder approval when it is otherwise required by law or the articles of incorporation. Under the current circumstances, because directors and shareholders may not able to meet, the Code and amendments to bylaws can address current pandemic or similar emergency situations in the future. These recommended amendments can allow the corporation to be operated properly.
If you have questions about updating your bylaws, please contact a business law attorney at Schneiders & Associates, L.L.P. for advice and legal guidance.