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Editorial 8 MIN READ

Delaware rewrites the meeting rules in nine weeks

How HB 341 moved annual meetings onto Zoom by statute, and what the drafting actually did to §§ 110 and 211

The Editors
Staff, Incorporator.org
8 min read Updated
Contents 6 sections
  1. What the bill actually changed
  2. Why § 211 was the pressure point
  3. The emergency-bylaws rewrite is broader than it looks
  4. What this means for the 2020 proxy season
  5. What is still unsettled
  6. Sources

n April 6, 2020, Governor John Carney signed House Bill 341, and Delaware's annual-meeting statute changed in the middle of proxy season. The law lets a corporation's board move a noticed stockholder meeting to a remote-only format during a declared state of emergency, without re-noticing, and with a grace period on the location that was already in the proxy materials.

This is the Delaware pandemic annual-meeting amendment, and for the roughly 1.5 million entities on file with the Division of Corporations it rearranged a set of rules that had not been touched in any meaningful way in a generation.

What the bill actually changed

HB 341 does two substantive things to the Delaware General Corporation Law and one parallel thing to the alternative-entity statutes.

First, it amends 8 Del. C. § 110, which is the section titled "Emergency bylaws." Before April, § 110 was a Cold War artifact. It had been drafted to let a board function if a "catastrophe" or "attack" decimated the directors and officers, and it gave the surviving management a temporary authority to keep the company running. It was rarely invoked and mostly ignored in practice. HB 341 rewrites § 110 so that an "emergency condition" now expressly includes "an epidemic or pandemic, and a declaration of a national emergency by the United States government or a declaration of a state of emergency by the Governor of Delaware." It then grants the board, during such an emergency, the power to take "any action that it determines to be practical and necessary to address the circumstances of such emergency," specifically including the authority to notify stockholders of a postponed or relocated meeting "solely by a document publicly filed" with the SEC.

Second, the bill amends 8 Del. C. § 211, the meetings-of-stockholders section. The addition is a new subsection that permits the board, notwithstanding the existing requirement that a physical location be designated in the notice, to determine that a meeting previously noticed for a physical place shall be held "solely by means of remote communication" in an emergency. The board can make that determination after the notice has gone out. Stockholders are not entitled to a re-noticed meeting. The corporation must publicly announce the change and post it on its investor-relations website, but the original notice remains effective.

Third, Delaware made parallel amendments to the Limited Partnership Act at 6 Del. C. Ch. 17 and the LLC Act at 6 Del. C. Ch. 18, so that partnerships and LLCs whose agreements contemplate member or partner meetings can do the same remote-only conversion. Most Delaware LLCs operate without scheduled meetings at all; the amendment is meaningful mostly for the subset of LLCs and LPs whose agreements require periodic meetings, including some fund general-partner structures and some real-estate joint ventures.

The law took effect on signing and applies retroactively to any meeting noticed before the effective date but held after it. That retroactivity is unusual in the DGCL and was specifically drafted to catch the 2020 proxy season, which was already underway when the state of emergency was declared.

Why § 211 was the pressure point

Delaware permitted virtual-only annual meetings before HB 341. The relevant text of § 211(a)(2) has authorized remote meetings since 2000, when Delaware became one of the first states to amend its corporate code for electronic participation. A corporation whose bylaws did not prohibit it could hold an annual meeting "solely by means of remote communication" if the board resolved to do so and met the usual notice requirements.

The operational problem in March 2020 was not whether a Delaware company could hold a virtual meeting in principle. It was timing. A public company files its proxy statement in February or early March, six to ten weeks before the meeting date. The proxy contains the physical location of the meeting; the notice of meeting has gone out; the solicitation is in flight. Then the governor declares a state of emergency, the hotel ballroom cancels, the SEC issues guidance encouraging remote formats, and the board has to decide whether to convene four hundred people in a convention center or break the statute.

Under the pre-amendment § 211, breaking the statute was a plausible concern. The corporation had noticed a physical meeting at a specific address. Moving it to a virtual platform required either re-noticing, which by that point was logistically impossible for most large companies, or relying on the older convening-and-adjourning workaround, where a skeleton crew would open the meeting at the noticed location and adjourn to a later virtual continuation. That workaround is legally defensible but operationally awkward, and it was never designed for a pandemic caseload in the hundreds.

HB 341 closes that gap. The board can change the meeting to remote-only after the notice has gone out, without re-noticing, so long as the change is publicized through an SEC filing (typically an 8-K) and on the company's investor-relations page. The requirement is disclosure rather than renewed consent. Stockholders who already submitted proxies have those proxies counted at the remote meeting.

The emergency-bylaws rewrite is broader than it looks

The § 110 changes received less press coverage than the § 211 fix, but they are structurally the larger move.

Before HB 341, § 110 existed as a stub. It let a board adopt emergency bylaws to deal with a decimated quorum and gave limited authority for surviving directors to appoint replacements. Corporations rarely adopted standalone emergency bylaws because the default rules in § 141 and elsewhere were serviceable.

The rewritten § 110 now reads as a full parallel governance track. It expressly authorizes the board during an emergency to:

  • postpone any stockholder meeting to a later date,
  • change the time and place of a stockholder meeting, including to a remote-only format,
  • adopt modified notice procedures,
  • take "any other action that is practical and necessary to address the circumstances of the emergency," and
  • do all of this by board action alone, without stockholder vote, notwithstanding contrary provisions elsewhere in the DGCL or in the corporation's own bylaws.

The last clause is the aggressive one. It permits the board to override a corporation's own charter and bylaws to the extent necessary to respond to the emergency. In normal times, a board cannot waive a bylaw provision by fiat. During a § 110 emergency, it can, provided the waiver is limited to what the circumstances require and the emergency condition exists. The statute anchors that authority to a governmental declaration rather than to the board's own judgment, which is how the drafters kept the provision from swallowing the broader DGCL. When the governor's declaration lapses, so does the § 110 authority.

What this means for the 2020 proxy season

By the time HB 341 was signed, large Delaware-incorporated issuers had already started announcing conversions to virtual-only meetings. The SEC's March 13, 2020 guidance (Division of Corporation Finance Staff Guidance for Conducting Shareholder Meetings in Light of COVID-19 Concerns) told issuers they could announce a change in meeting format through a proxy supplement filed on EDGAR and a press release, without mailing a new proxy card, so long as the format change was disclosed promptly and the record date remained the same. Many issuers relied on that guidance in the weeks before HB 341 passed.

HB 341 ratifies, under Delaware law, exactly what the SEC told companies they could do under federal proxy rules. It is not a federal preemption fix; the SEC guidance deals with Rule 14a-4 and the mechanics of proxy solicitation. But it removes the Delaware-law argument that a dissatisfied stockholder might have made in a books-and-records demand or a § 211 action, namely that the meeting was defectively held because the location in the notice did not match the actual format. That argument is now foreclosed by statute.

The practical effect, for the remainder of the 2020 proxy season and into any re-noticed special meetings later in the year, is that a Delaware board can treat the virtual format as the default during the emergency. Several of the large proxy-advisory firms have updated their guidance accordingly.

What is still unsettled

A few second-order questions remain open as of early summer.

The first is duration. HB 341's expanded § 110 powers are tied to the existence of a declared emergency. The bill does not set an independent sunset. When Delaware's state of emergency lifts, the statutory hook disappears, even if a federal declaration continues or conditions on the ground have not meaningfully changed. Companies that adopt virtual-only formats as a default, rather than an emergency response, will need to comply with the ordinary § 211 procedures from that point forward.

The second is alternative-entity practice. The LP and LLC amendments track the corporate amendments in structure, but the underlying statutes are far less prescriptive about meetings to begin with. A Delaware LLC can define its own meeting and notice procedures in its operating agreement, and many do. The amended LLC Act provisions are a gap-filler for agreements that are silent or that incorporate state default rules by reference. For the vast majority of LLCs that never hold formal meetings, HB 341's LLC-side amendments change nothing operational.

The third is the interaction with bylaw provisions requiring physical meetings. A nontrivial minority of older Delaware charters and bylaws, particularly in family-controlled or closely-held public companies, contain requirements that the annual meeting be held at a specific city or at the company's principal place of business. The rewritten § 110 empowers a board to override those provisions during an emergency, but a board contemplating such an override should document the emergency finding carefully in the minutes. The statute is new, and the first challenges will likely come from charter provisions that an acquirer or an activist argues were effectively waived without authority.

One worth-watching loose end: Delaware's drafting contemplates the declaration of an emergency by the Delaware governor or by the federal government. It does not reach, on its face, a situation where a corporation's principal place of business is in another state whose governor has declared an emergency but whose declaration is not matched by a Delaware or federal one. The structural answer is that a Delaware corporation follows Delaware law, and a Delaware state of emergency was in effect through the relevant period of the 2020 proxy season. That neatness may not hold in future emergencies.

The drafting speed is itself the story. The bill was introduced on March 30, passed both chambers within a week, and was signed April 6, which is faster than Delaware has moved on any amendment to the DGCL in recent memory. The Corporation Law Council's annual cycle of amendments normally runs from spring to a July effective date; this one bypassed that cycle entirely. Whether that speed becomes a precedent or remains a one-off is the interesting question for the next time something unexpected collides with proxy season.

Sources

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