The state of emergency declared due to the Covid-19 pandemic has forced the Ministry of Justice and the Parliament to update the Commercial Law at short notice, introducing new provisions on remote participation and voting at a shareholders’ meeting. The amendments cover meetings of both SIA and AS shareholders and came into force on 22 March 2020. This article uses the terms “company”, “shareholder”, and “shareholders’ meeting” in relation to both SIA (private limited company) and AS (public limited company).
The new rules contain several options enabling a shareholder to participate and vote at a shareholders’ meeting without being physically present:
1) voting before the shareholders’ meeting;
2) using electronic means of communication to participate and vote at a physically held shareholders’ meeting;
3) participating and voting at a shareholders’ meeting that is fully electronic (e-meeting).
In all these cases, a remote shareholder is equal to a personally present shareholder and should be recorded in the shareholders’ list which is prepared before opening the meeting (to record the shareholders), and the shareholder’s vote is included in the voting by following the same procedure as with the votes of physically present shareholders.
Shareholders’ e-meetings and a shareholder’s right to participate and vote electronically may not restrict another shareholder’s rights related to shareholders’ meetings. For example, a shareholder can express an opinion, ask questions and participate in discussions, submit additional items for the agenda and draft decisions before the meeting within the time limits specified by law, and challenge decisions by the shareholders’ meeting. Remote participation in the shareholders’ meeting must be organised so that it ensures all the rights of all shareholders.
Voting before the shareholders’ meeting
From now on, each shareholder is entitled to vote before the shareholders’ meeting irrespective of the number of shares they hold or other criteria. There is no need to include these rights in the company’s articles of association, and the shareholders need not request an opportunity to implement these rights.
In line with the new provisions, all notifications to convene a shareholders’ meeting must indicate the procedure and deadline for shareholders to use their right to vote before the shareholders’ meeting, or participate, or vote at the shareholders’ meeting by means of electronic communication, for example, by indicating a postal or e-mail address where votes should be sent, as well as the company’s requirements for identifying shareholders.
In order to vote, a shareholder must make sure that the company can identify him/her. The new rules do not specify any modes of identification. Regulations recognize two cases when a signed document contains confirmation of someone’s identity – notarial certification or a secure electronic signature; nevertheless, a company can introduce a different procedure enabling remote identification of shareholders.
In practice, shareholder identification may cause problems because notarial certification is not the most efficient solution due to speed and costs and, depending on the country, it might need an apostille or legalisation; foreign electronic signatures often fail to meet the requirements of Latvian rules; moreover, introduction by a company of its own identification procedure may require additional resources.
Shareholders must likewise ensure that their vote is received by the company at least on the day before the shareholders’ meeting. To verify that the company has received the vote and that identification has been successful, the shareholder can ask the company to confirm receipt of the vote. This request can be expressed simultaneously with sending the vote or later. It is advisable for the shareholder to send their vote on the day of receiving the final agenda for the meeting, at the earliest, because the agenda for the shareholders’ meeting could change after receiving the initial notification, if, for example, other shareholders submit additional items for the agenda.
If the vote has not been received or the shareholder cannot be identified, the shareholder can participate at the meeting in person by electing a representative or by using electronic means of communication. Even if a shareholder has voted before the meeting, this does not constitute an obstacle for them to attend the meeting in person or to participate in the meeting by electronic means of communication, as well as to participate in voting at the meeting. In these cases, the shareholder’s previous vote should be cancelled, and the vote given during the meeting should be taken into account.
Electronic participation and voting at the shareholders’ meeting
From now on, shareholders’ meetings can be held fully or partially remotely or by employing electronic means of communication. The new rules distinguish between a fully electronic shareholders’ meeting (shareholders’ e-meeting) and meetings held on site where shareholders can also use their rights electronically.
A shareholder’s right to participate and vote at a shareholders’ meeting held on site by using electronic means of communication can be implemented in three cases:
1) on its own initiative, the management board invites shareholders to use this opportunity to participate in the shareholders’ meeting;
2) shareholders who jointly represent at least 20% of the company’s share capital (if the articles of association do not set a lower representation threshold) ask the management board to ensure this opportunity;
3) under the company’s articles of association remote participation and voting must be ensured at each shareholders’ meeting.
In the first and second cases, the management board sets the requirements for shareholder identification and the procedure enabling shareholders to use their right to participate or vote at the shareholders’ meeting; the third case, on the other hand, leaves this option to the shareholders. That is, either the articles of association determine or delegate the task to the management board to set the requirements for identifying shareholders and the procedure enabling shareholders to use the right to participate and vote at a shareholders’ meeting.
In these cases, the shareholders’ meeting is organised on site, that is, a place for the shareholders’ meeting is determined and shareholders can go there and use all the shareholders’ rights in relation to the shareholders’ meeting; however, the shareholder should also have the option to connect remotely or by using electronic means of communication. This means that some shareholders can attend the meeting in person and others can attend remotely; it remains each shareholder’s free choice as to how to participate and vote at the shareholders’ meeting: to attend in person or remotely.
On the other hand, shareholders’ e-meetings exclude the shareholder’s option to appear in person. This actually implies the shareholder’s obligation to participate and vote at the meeting remotely by using electronic means of communication.
Shareholders’ e-meetings can be organised only if the articles of association allow: the management board cannot organise a shareholders’ meeting solely in electronic form on its own initiative or upon the shareholders’ request.
To implement amendments to the articles of association to that effect, consent is required from all shareholders with voting rights in order to protect minority shareholders. So, the majority shareholders cannot impose an agenda for the shareholders’ meeting that potentially denies a shareholder’s option to participate at the shareholders’ meeting and use their rights. In turn, the requirement of shareholders’ e-meetings can be excluded from the articles of association by a qualified majority of votes because this amendment to the articles of association sets less stringent restrictions for participation in a shareholders’ meeting.
Considering that shareholders may want or need a comprehensive discussion to decide certain issues, holding a meeting could be more efficient if the shareholders meet in person. For this reason, the new rules allow the shareholders themselves to decide and agree upon the most efficient manner of holding shareholders’ meetings, and allow choosing and mutually combining various modes of remote participation. This means that including shareholders’ e-meetings in the articles of association enables a decision on certain issues, for example, significant changes to the company such as increasing the capital, amending the articles of association, liquidating, or reorganising the company can be adopted only in physical meetings on site, though also with the right to participate remotely.
Information about a shareholder’s rights to participate and vote via electronic means of communication, also about implementation of shareholder rights at an e-meeting, should be included in the notice convening the shareholders’ meeting, and should indicate the procedure and deadline for implementing those rights.
Shareholders’ e-meetings and shareholders’ right to participate and vote electronically do not restrict a shareholder’s right to vote before the meeting; this must be ensured independently from other forms offered for shareholders’ remote participation at the meeting.