Participation by shareholders in virtual meetings and electronic voting
With time and geographical constraints amongst many factors driving change in the voting process, companies are looking to hold virtual meetings to implement a more efficient method to obtain shareholder votes and use the concept of 'e-voting', whereby members or shareholders can vote on resolutions via an electronic system.
This article maps out the key elements of e-voting including the practicalities and risks, the legal basis on which e-voting is permitted and the process by which the concept can be utilised by a range of body corporates, including public, private and quoted companies.
Towards the end of this article you will also find a glossary of key terms.
What is the legal basis on which e-voting is permitted?
The Companies Act (the Act) permits the use of electronic means for the purpose of enabling shareholders to participate in a general meeting, subject to the requirement for traded companies that it is necessary to ensure the identification of those taking part and the security of the electronic communication. The Act states that a company can require reasonable evidence of the entitlement of any person who is not a shareholder to participate in the general meeting.
If the company is not a traded company, the shareholders are not subject to the above requirements and electronic voting is therefore permitted.
The Act also states that a meeting can be held in such a way that persons who are not present together at the same place may, by electronic means, attend and speak at vote at such meeting, thereby permitting the process of e-voting.
The law therefore allows a great deal of flexibility regarding e-voting and electronic participation by shareholders in general meetings.
What are the advantages of using e-voting?
In short, e-voting provides ease of use for all shareholders. The electronic platforms which manage e-voting are accessed via a URL or app, and then the shareholder is usually provided with a meeting code and login ID and sets a password. They then login when required to from wherever is convenient for them.
There are several companies that use the same electronic platform, thus providing quick access to shareholdings in several companies within minutes.
Paperless voting means that the possibility of postal forms getting lost in transit is avoided (together with a reduction in cost and carbon footprint) Clear instructions are provided on-screen preventing invalid votes arising from forms being completed incorrectly.
The timing system within the electronic platform means that the shareholder is given time to vote until the end of the voting cycle and, where permitted, can also log back in to change their vote prior to the voting period closing.
Online voting systems are secure and sites typically encrypt the details of instruction before sending them over the internet to the company. A legitimate online voting platform will begin with 'https' in the address bar rather than 'http' to demonstrate it is a secure site.
How do I send notice of a meeting electronically and what should it include?
Before sending any notice electronically, the recipient of such notice i.e. the shareholder, must have indicated to the company his willingness to receive the notice in the form and manner used. Indication must state the address to be used and must be accompanied by such other information as the person requires for the making of the transmission. This could include the shareholder's name, telephone number and an alternative or backup email address.
Should a shareholder of a company hold shares on behalf of another person, the member may nominate that person to receive certain information, including a copy of all communications that the company sends to its members generally (such as notice of a general meeting) . The member may also therefore provide to the company details of the indirect investor to receive electronic communications.
Documents or information sent in electronic form (by e-mail, fax or in the post via USB or disk) must be sent in a way that the recipient can read the information with the naked eye and retain a copy of such information.
Where a company provides their electronic address in a notice calling a general meeting of the shareholders, it is deemed that any information relating to proceedings can be returned to such stated electronic address. This includes documents relating to proxies, such as the appointment of a proxy in relation to a meeting, any document necessary to show the validity of the appointment of a proxy and notice of the termination of the authority of a proxy.
The notice when sent out should make it clear that voting will be done on a poll basis and should provide clear instructions on how to access, speak and vote at the meeting. There should also be a contact number for the technology provider managing the electronic voting system should the shareholders require assistance before or at the meeting.
How many days' notice do I need to give?
The usual notice provisions according to the Act apply, in that a general meeting of a private company must be called by notice of at least 14 days, unless a longer period is stipulated by the company's articles of association.
If shorter notice is agreed by the members in majority (90% or such higher percentage up to 95% in the company's articles) then a general meeting may be called by shorter notice.
A general meeting must be called by notice of at least 21 days for an AGM, and in any other case, at least 14 days.
If shorter notice is agreed by the members in majority (95%) then a general meeting may be called by shorter notice.
A general meeting must be called by notice of at least 21 days, and in any other case a meeting must also have at least 21 days' notice. However general meetings can be held on at least 14 days' notice if the meeting is not an AGM, the company allows shareholders to vote electronically and a special resolution reducing the notice period has been passed.
What is a virtual general meeting?
A virtual general meeting is where shareholder meetings are held without a physical meeting location. This can be done using conference call facilities, or through a web browser or mobile app. It is also possible to use a combination, for example using a conference call for shareholders to ask questions, then using a web browser or app to enable the shareholders to follow a presentation and then vote.
UK companies are permitted to hold a virtual meeting without also having a physical meeting.
Checks and Preparations before holding a virtual meeting
The first step is to ensure that the company's articles of association contain no provisions that general meetings must be held in a physical place, such as the notice provisions stating a time, date and place of the meeting (therefore implying that a physical location is required).
The articles should also give the chairman discretion to adjourn the meeting if there are any technical issues. If even one shareholder has technical issues then the chairman wouldn't be able to put a resolution to all shareholders at the time to adjourn the meeting. Practically this would require amending the current articles and then holding the following general meeting or AGM as a virtual meeting.
It is advisable to have a run through of the virtual meeting with the board of directors and/or chairman to understand how the process shall work, ensure wherever possible that the technology runs without error including checking that the chairman of the meeting knows whoever is speaking (there is no requirement for all participants to be able to see each other during the meeting) and that all participants could speak and vote.
The usual requirements however will still apply regarding quorum, notice periods, displaying documents where required and counting and declaring the results of the vote. The directors should be at the general meeting and be available to answer any questions from shareholders.
Another issue to be aware of is that some shareholders may not have internet access at the time of the meeting. Such shareholders can still vote at the virtual meeting but would have to complete a proxy form in order to do so.
Is it possible to hold a meeting that's both virtual and physical?
Yes. Notice of the meeting would have to include the physical location in which the meeting is being held, and can be physically attended by directors and/or shareholders, together with details of the electronic system being used for the virtual element of the meeting such as video conferencing facilities.
The articles of the company would also have to reflect that a physical place is permissible for meetings.
Are there existing models being used for electronic voting? If so, who is using them?
There are a number of models being used around the world for e-voting purposes but in the UK the notable market leader is Equiniti. Equiniti provide a system known as 'Sharevote', a web-based platform which complements paper based proxy voting and allows shareholders to make electronic appointments.
There is also the 'VoteNow' system that can be used in physical meetings and uses electronic voting handsets to record the votes, tailored to each shareholder and the number of shares held. Not only does it ease the voting process but also provides a full electronic audit trail of attendance and voting.
IHG (Intercontinental Hotels Group plc) use Equiniti's Sharevote, together with a number of other household names such as Debenhams, Thomas Cook Group and Marston's.
Aside from the possibility of technical issues, are there any other risks associated with electronic voting?
Electronic voting can raise other issues pertaining to anonymity, incorrect records and simply that those voting are not who they say they are. If shareholders were to vote using paper forms, these paper records provide verification that votes were counted and keep those votes anonymous. However electronic votes leave a form of online audit trail which arguably make the process less anonymous.
The concept of moving voting in a physical meeting location to voting at home or on the go also raises the risk that an unverified third party votes on a shareholder's behalf. Although in practice this is unlikely, there is potential for coercion and it is important to note that electronic voting poses a higher risk in this regard than the traditional voting method.
If electronic voting is permissible, are electronic signatures considered valid and enforceable?
Alongside the electronic voting process is the option for shareholders to cast their vote via the written resolution procedure, either by hand or by electronic signature.
The Law Commission's consultation paper on the validity of electronic signatures published in 2018 noted that an electronic signature cannot be denied legal effectiveness solely because of its electronic nature. The paper makes reference to EU regulations incorporated into UK legislation which deal directly with the enforceability of electronic signatures, and notes that although existing legislation does not expressly provide for the validity of electronic signatures, it does support the admissibility provisions of such signatures as outlined in the EU regulations.
The consultation paper also reviewed recent case law which considered the validity of electronic signatures in a number of practical scenarios. The Commission concluded that case law demonstrated that electronic signatures can satisfy a statutory requirement for a signature. This included a typed name and clicking on an 'I accept' button. It is therefore permissible for written resolutions or proxy forms to be signed electronically as both current legislation and case law have demonstrated there is sufficient flexibility to accommodate documents that are signed electronically.
Such validity of electronic signatures only applies however in relation to documents that are not required to be executed as deeds, which have more stringent formality requirements than a simple document. For a deed to be valid it needs to be signed in the presence of a witness. There are currently no legislative provisions which deal with electronic execution of deeds.
It has been suggested that deeds which are signed electronically should not need to be witnessed, but the Law Commission has advised that witnessing and attestation should be retained for electronic documents executed as deeds and that a witness must be physically present, as current legislation does not provide for the witnessing signatures via video link.
Please do contact us if you would like further information and advice on preparing for and holding a virtual company meeting.
This article is for general information and does not, and is not intended to, amount to legal advice and should not be relied upon as such. If you have any questions relating to your particular circumstances, you should seek independent legal advice.