Corporate Shareholder Meetings In Washington State
Washington corporations have shareholders and those shareholders have certain rights. Among these rights is the right to participate in shareholder meetings, which can include the right to vote on things like the election of directors to the board of directors. This is of course a significant right as the board of directors is ultimately responsible for managing the corporation.
Outlined in this post are a handful of some of the most important details about Washington corporate shareholder meetings, including the different types of meetings, the notice that must be given in advance to shareholders, voting procedure, and more.
Related: How To Form A Washington Corporation
The Types of Shareholder Meetings
Shareholder meetings come in two flavors: annual and special.
A Washington corporation is required to have an annual shareholders’ meeting to elect directors to the board. The time and place of this meeting should be set out in the corporation’s bylaws. If no place is specified, the meeting should be held at the corporation’s principal office. RCW 23B.07.010.
Note: The annual meeting can be held remotely at the board’s election so long as neither the articles of incorporation or the bylaws prohibit it.
Special meetings may be called by the board of directors or by others authorized to do so by the articles of incorporation or the bylaws. They may also be called if at least 10% of the shareholders entitled to vote on the issue to be considered at the meeting demand a meeting. RCW 23B.07.020.
The Notice Required
As you might expect, the corporation has to give advance notice to certain shareholders of the time and place of the annual meeting (and any special meetings). At least 10 days advance notice is required (but no more than 60 days) before the meeting. The shareholders who are entitled to notice are those who are entitled to vote, unless otherwise provided in the articles of incorporation. RCW 23B.07.050.
While the notice of the annual meeting doesn’t need to explain the purpose of the meeting, the notice of a special meeting does, which makes sense as the purpose of the annual meeting (to elect directors to the board) is clear, but the purpose of a given special meeting isn’t apparent without some additional explanation.
The Record Date
The “record date” determines when a shareholder must officially be the owner of a stock such that he or she is entitled to certain things, like notice of and the right to vote at a shareholder meeting, among other things.
The corporation’s bylaws often set the record date for each voting group, but if they don’t, then the board of directors can set a future date, provided that it isn’t more than 70 days before the annual meeting or more than 10 days before the first shareholder consent is executed. Absent any record date being set by the bylaws or the board, the default is one day before notice is given to the shareholders. RCW 23B.07.070.
The Quorum Requirement
To approve corporate action at a shareholder meeting, a quorum must be present to vote. Generally speaking, a quorum is the minimum number of people who must be present in a meeting to make whatever happens at that meeting valid.
In an annual shareholder meeting, a simple majority of the votes entitled to be cast on the matter by a voting group amounts to a quorum of that voting group (that means over 50%), unless specified otherwise by the articles of incorporation or the Washington Business Corporation Act. RCW 23B.07.250. While the number of votes may be increased or decreased in the corporation’s governing documents, a quorum can never consist of less than 1/3 of the votes entitled to be cast.
The Voting Process
In general, but with certain exceptions, each share is entitled to vote on each matter subject to a vote at a shareholders’ meeting.
Tip: For those shareholders who don’t want to attend a shareholder meeting, they may vote by proxy, meaning they give permission to someone else to vote as directed. This is a common method of voting to elect directors to the board. RCW 23B.07.220.
As you know by now, the typical subject of a vote at the annual shareholders’ meeting is the election of directors to the board. Unless the articles of incorporation provide otherwise, directors are elected to the board through what’s known as “cumulative voting.”
Note: As of this writing in March 2019, the Washington legislature is considering an amendment to the WBCA that, if passed, would eliminate cumulative voting as a default rule for electing directors to the board for corporations formed on or after January 1, 2020. These corporations could still elect to have cumulative voting but would have to do so in their articles of incorporation.
This system of voting gives minority shareholders a greater chance to elect a director. It does so by allowing a voting shareholder to cast all of their votes (the number of which is equal to the voting shares multiplied by the number of directors up for election) for a single nominee when the company has multiple opening on the board. RCW 23B.07.280.
Consider an example to illustrate how this works. There are 3 director candidates. A majority shareholder owns 500 voting shares, while a minority shareholder owns only 200 voting shares. Under cumulative voting, the minority shareholder receives 600 votes (200 shares x 3 candidates) that it can cast to one candidate. If the majority shareholder splits its 1500 votes (500 shares x 3 candidates) evenly among the 3 candidates, then the 600 votes from the minority shareholder for one candidate will beat the majority shareholder’s 500 votes for the same candidate.
Corporate shareholder meetings are fun! OK, maybe not so much, but they sure can be consequential. If you’re a shareholder, it’s worth educating yourself about your rights. And if you’re involved in managing the corporation, it’s critically important that you understand how to comply with the rules in place, including the articles of incorporation, the bylaws, and the Washington Business Corporation Act.
More details on shareholder meetings can be found at Chapter 23B.07 RCW.