Have Your Stockholders Taken Action This Year?

This article is for informational purposes only and does not constitute legal advice.

Introduction

When was the last time your stockholders took formal action on behalf of your company?

Founders are often surprised to learn that Delaware corporations are required to hold an annual stockholders’ meeting to elect or re-elect directors. In practice, however, most early-stage startups satisfy this requirement through written consents rather than going through the formal rigor of convening a meeting.

Below you will read how annual stockholder actions are usually straightforward and can be completed in just a few signatures.

What is an Annual Stockholder Meeting?

An annual stockholder meeting is the mechanism through which stockholders exercise their oversight authority by electing or re-electing the company's board of directors. Other company business may also be addressed at the same time.

Fortunately, you can skip the logistics of planning an actual meeting.

Delaware law permits stockholders to act by written consent, allowing director elections and other stockholder actions to be approved without holding a meeting.

That said, some companies prefer to hold an actual stockholder meeting, and there certainly are benefits in bringing your stockholders together. If you're interested in the mechanics of convening a meeting, including topics such as notice, quorum, and minutes, this guide from Capboard provides a useful overview.

Why?

Annual stockholders’ actions, outside of being statutorily required, are part of the myriad of activities you, as a founder, will do to show you have your company in order. Documentation of these actions will be part of your startup data room, and while they probably won’t be heavily scrutinized, their absence will be.

Keeping your board elections current helps ensure that your corporate records accurately reflect who is authorized to manage the company.

It also helps demonstrate that stockholders have had the opportunity to exercise their governance rights.

Annual stockholder actions can also serve as a convenient vehicle for documenting other matters requiring stockholder approval.

How (not) to hold a meeting?

Satisfying the annual stockholder meeting requirement can be as simple as preparing and signing two documents:

1. A unanimous written consent of the board of directors recommending the election of directors and approving any other matters being presented to the stockholders; and

2. A stockholder written consent electing the directors and approving any related stockholder actions.

Unlike board actions, stockholder approvals do not always require unanimous consent. In many cases, the action may be approved by the holders of the minimum number of shares required to authorize the matter. If the action is taken without unanimous stockholder approval, notice should generally be provided to any stockholders who did not sign the consent.

Conclusion

If you can't remember the last time your stockholders formally elected directors, now might be a good time to check your corporate records. A few signatures today keeps things organized.

If you need assistance preparing annual stockholder consents, maintaining your corporate records, or navigating other startup legal matters, an experienced startup lawyer can help ensure your company remains organized and investor-ready.