In April 2020, Massachusetts enacted emergency legislation that eases certain corporate governance requirements for the duration of the Commonwealth’s state of emergency, declared by the Governor on March 10, 2020, and for 60 days thereafter. This article highlights key takeaways that affect Massachusetts Chapter 180 non-stock corporations.
Section 16 of the emergency legislation signed April 3, 2020 gives the board of directors of Chapter 180 corporations more flexibility in the following matters of corporate governance, so long as the entities’ articles of organization do not provide otherwise. While Massachusetts law generally grants corporations the flexibility to set forth in their bylaws many aspects of the manner and method of operation, this emergency legislation now permits Chapter 180 corporations to override specific requirements of the bylaws during this period without requiring such bylaws to be formally amended.
Relaxed notice requirements
Chapter 180 permits a non-stock corporation to establish in its bylaws what constitutes proper notice of meetings of the directors. Most corporate bylaws set forth a process of providing notice several days in advance by mail, email or phone communication to a director’s usual or last known place of business or address. This normal process may be challenging given remote work environments and social distancing, and it may be difficult for the corporation to track down where each director is on a given day and ensure that she receives the notice.
Under the emergency legislation, the corporation only needs to provide notice to those directors who are “practicable” to reach. The corporation also has discretion to choose the method of notice based on practicality. Similarly, when cancelling a meeting of the members, the emergency legislation allows the flexibility to use any practical methods of notice as well.
While the emergency legislation does not define “practicable,” this provision eases the notice burden that may be otherwise established in the bylaws. This flexibility could allow for methods of communication such as texts, social media messaging or chats.
Greater latitude to facilitate meetings of the members
While Chapter 180 allows non-stock corporations not to have members, many do have one or more classes of members that are set forth in the Articles. Chapter 180 also allows the method of meetings of the members to be established in the bylaws. In many cases, bylaws of corporations that have members only allow votes to be cast by members that are physically present at a meeting, either in person or by proxy.
The emergency legislation allows some flexibility to override more stringent bylaw requirements in order to conduct meetings during the Coronavirus (COVID-19) crisis.
The emergency legislation permits members to vote in person or by proxy, provided that members voting by proxy shall count for quorum.
Unless prohibited in the articles of organization or bylaws, this is already permitted under Chapter 180 and generally in many corporate bylaws.
Remote participation for a meeting of the members is also permitted under the emergency legislation, and shall count for quorum only if all of the following are true:
First, reasonable measures must be implemented to verify that votes are cast by a member or proxyholder.
For example, votes cast via chat, online polling or online surveys would require a method of verifying that they were in fact cast by the appropriate person.
Second, reasonable measures must be implemented to provide members and proxyholders with a reasonable opportunity to participate in the meeting and to vote. These measures include opportunities to read or hear the proceedings of the meeting substantially concurrently with such proceedings and opportunities to pose questions and make comments, regardless of whether communication is simultaneous.
The definition of “substantially concurrent” communications is not clear from the emergency legislation, but it does appear that meetings could be conducted virtually in a way that does not account for simultaneous, real-time participation. For example, comments/questions could be collected in advance of an online or recorded meeting (made available to members for a period of time), where votes would be taken through an online poll or survey by individuals who viewed the meeting live or through a subsequent recording.
Third, the corporation must maintain a record of the votes and other actions taken in the meeting that involves virtual participation.
For example, any votes taken via a webinar meeting would need to be recorded appropriately in the minutes.
This flexibility for meetings of the members stands in contrast to how board meetings must be conducted, even under the emergency legislation. Boards can permit remote participation by directors, but only when all persons participating in the meeting can simultaneously communicate with each other at the meeting. This approach is generally included in most corporate bylaws already.
Flexible terms of office
The emergency legislation permits a board to allow a director or officer to continue to serve during the state of emergency and until his successor is elected, appointed or designated, despite the expiration of the director’s or officer’s term. The board may also appoint successors to officers, directors, employees or agents.
Most bylaws already provide for this, but the legislation allows for temporary flexibility for those that do not.
Authority to relocate the principal office
Boards are permitted to relocate the corporation’s principal office under the emergency legislation. Normally, the principal office is first established in the Articles of Organization, and most bylaws will permit the board to change the location effective upon filing a certificate with the secretary of the Commonwealth’s office. Changes can also be reported in the corporation’s annual report.
It is unclear if the emergency legislation tolls the requirement to file the certificate with the secretary’s office during the emergency or the requirement that the corporate records be stored at the principal office.
In a Chapter 180 corporation with members, the corporation must notify the members, as soon as reasonably practicable, of any action taken by the board of directors pursuant to the emergency legislation.