Delaware corporations must hold stockholder meetings every year (even for family businesses and one-owner businesses). Failure to do so may call into question whether your corporation has been following necessary corporate governance formalities. Legalities aside, it is good to meet with stockholders and provide an update on the current activity and plans and listen to their feedback. We usually suggest including legal counsel and your CPA in this discussion. We provide an outline of a sample agenda for this meeting and sample minutes from this meeting in our incorporation packet.
Delaware law requires that a “meeting of stockholders” of a corporation must happen every year (or technically every 13 months under Delaware law). What must happen at an annual stockholder meeting? According to Delaware law, the reason for the annual meeting is to elect directors and transact “Any other proper business”. Technically, the only action required at an annual meeting is election of directors by the stockholders, but often times many other topics concerning the business are addressed. Please see our sample Annual Corporation Meeting Agenda below for some examples of agenda items.
Sample Annual Corporation Meeting Agenda
- Stockholders elect directors
- Directors elect officers
- Retainer of accountant
- Discuss financial matters and Dividend
- Salaries for upcoming year
- Bonuses for previous year
- Profit sharing contribution
- Money Purchased Pension contribution
- Defined Benefit contribution
- Loans to or from corporation
- Large purchases (property and/or equipment)
- Leases (office and/or equipment)
- Employment agreements
- Stock purchase agreement
- Life insurance
- Disability insurance
- Medical insurance
- Medical Expense Reimbursement Plan
- Liability insurance
- Status of contracts
- Pending claims and suits
- Employee relations
- Fees or prices
- Income tax audits (Corporation and Stockholders)
- Business in other states
- Business Licenses and Permits
- Personal planning of stockholders
- Are Wills and trusts up to date?
- Beneficiary designations
- Individual Retirement Accounts
- Coordination of assets with estate planning
- Check if both spouses are U.S. citizens
- Remind client that accountant is to prepare and file Form 5500 for Qualified Retirement Plans.
Stockholders of a corporation can also cast their votes to elect directors by proxy in the same way they can vote on other matters at a stockholder meeting. According to Delaware law, each share is worth one vote unless stated otherwise in the certificate of incorporation.
Stockholders typically have the option to be deemed present and participate by remote video or telephone communication as well. This section of the code alleviates the difficulty of getting everyone in the same room at the same time. It is also possible to avoid holding this annual meeting if there is a unanimous action in writing signed by all stockholders of the agreed-upon actions, such as election of directors. Usually the stockholder submits a signed proxy to vote on matters submitted to the stockholders.
What Happens If You Fail to Hold an Annual Meeting?
Sometimes unforeseen circumstances may come up that can prevent you from holding your annual meeting, like a natural disaster or illness among key stockholders. Let’s talk about what happens if this describes your situation.
One option is to hold the meeting virtually. While most stockholders likely prefer holding a meeting in person, modern videoconferencing enables meetings to be held virtually without losing many of the face-to-face advantages of an in-person meeting. Rules of order and meeting formalities should be maintained and the secretary should continue to keep accurate minutes.
Is it OK to reschedule it for a later time? The first place the stockholders should look to answer this question is the corporation’s Bylaws. Many require the stockholders have annual meeting once every 12 months. Some allow for 13 months to build in time for small delays and rescheduling.
Some business owners may view the annual stockholder meeting as just a corporate formality, but it does serve a purpose beyond electing directors and satisfying Delaware code. Holding annual meetings gives stockholders the chance to communicate with officers and directors and typically reduces the likelihood that they feel out of touch with the corporation and decide to file a complaint against the corporation.
Another reason to hold annual meetings is to maintain the limited liability of stockholders and directors. Although piercing the corporate veil is extremely unlikely in Delaware, not holding annual stockholder meetings gives courts the impression that other corporate formalities may not have been followed and the corporation is an “alter-ego” entity.
Requirements aside, annual meetings are great “check-ups” to focus your priorities and get help from legal and tax professionals to keep your business current on changes in the law and set your goals for the upcoming year.