Legal Question in Securities Law in California

Re: Shareholder meeting protocol

I must disregard the possible identification of a particular entity by your question, and give you a general answer.

First, I question whether there is a Federal issue here. Usually, state law governs voting by shareholders or members of corporations or LLCs, whether the quorum is met, what minimum size of quorum is permissible, etc., and does so by specifying what the bylaws or operating agreement may, must, or cannot specify. For example, California nonprofit corporation law allows the bylaws to provide for a quorum as low as ten percent.

So, a starting point would be to identify the quorum language in the governing documents for this organization (articles of incorporation, bylaws, LLC operating agreement, or whatever) and see if the provisions are consonant with the statutes of the state of incorporation or organization.

Next, let me point out that shareholder meetings of large corporations are often attended by holders of fewer than 5% of the outstanding shares. Quorum requirements are met by proxies. Usually, the meeting notice is accompanied by a proxy designation card, on which the shareholder ticks a box to appoint a corporate officer, usually the secretary, to act as proxy in voting the shareholder's shares. The proxy card is NOT a mail-in ballot in that it does not (usually, at least) mention the matters to be voted upon or name the directors to be elected. It merely delegates the right to make voting decisions to the proxy.

If not enough shareholders sign and return their designation-of-proxy cards, the corporation's shareholder-relations staff will get on the phone and call shareholders to remind them, and will send out additional cards until enough shares will be voted by proxy to make a quorum.

I think the reason voting by absentee ballot isn't used, and the proxy system is used instead, is that the issues to be voted on, and the candidates for board seats, are subject to change due to the right of shareholders present to make motions or nominations from the floor. This doesn't happen in political elections, but it can and does in business-entity voting.

So, it appears that in your case, the voting members who cannot attend should find someone who will be attending, and give that person a letter or other instructions appointing him/her as their proxy. The organization's secretary or equivalent should be asked to provide wording that will be acceptable to allow that person to act as proxy at the meeting.

If you have further questions, please contact me.