All registered corporations are required by law to hold an annual meeting. Limited liability companies (LLCs), although not subject to the same statutory requirement, may hold regular annual meetings per their governing documents.
In the United States, all corporations must hold an annual shareholder meeting because it is required by law. State laws differ slightly on what must happen at an annual corporate shareholder meeting. Still, they typically address the company’s annual report, board of director elections, new business ventures, changes to internal procedures, and dividends.
The annual shareholder meeting is usually scheduled shortly after the end of the fiscal year. This timing allows for discussing and reviewing the previous year’s financial performance. Some meeting activities may also be necessary for the annual corporate report, which most states require.
Depending on state law, there may be additional actions such as the following that require the shareholders’ and the board’s approval:
The corporate actions that will be taken by a vote of the shareholders at the annual meeting should be specified in the corporate bylaws. Bylaws should also detail voting procedures (for example, when a matter should be put to a vote or whether a simple majority or a supermajority is needed).
The annual meeting is a crucial part of maintaining the corporate legal structure. As a legal entity separate from its shareholders, corporations provide a liability shield that protects shareholders’ assets from business liabilities. But to keep the liability shield in place, corporations must follow certain formalities—such as holding and documenting an annual meeting. Failure to hold annual meetings could allow creditors to “pierce the corporate veil” to pursue shareholders’ personal assets to satisfy the business’s debts.
As mentioned, an LLC operating agreement may require annual or regular meetings. If it does, failure to abide by this formality can jeopardize the LLC liability shield.
In addition to liability protection, there are practical business reasons for LLC members to convene, including the following occasionally:
Having meeting rules and keeping accurate records of meetings can serve as evidence—in the eyes of members and outside interested parties—that the company is genuinely legally separate from its members and is being run well.
When an LLC’s operating agreement or articles of organization require annual meetings, members should comply with any formalities specified, such as the provision of notice or the preparation of minutes. If annual meetings become burdensome, LLC members can modify the governing documents to eliminate them. Alternatively, the operating agreement can include a provision allowing unanimous written consent in lieu of a meeting, which serves the same purpose as holding a meeting.
Corporations, on the other hand, are subject to more stringent state and federal compliance standards. Typically, when holding an annual meeting, a corporation must take the following steps:
Publicly traded corporations are subject to additional requirements, including the Securities and Exchange Commission’s proxy rules. The proxy rules require corporations to provide certain disclosures to shareholders in a proxy statement that describes matters up for shareholder vote, along with a proxy card.[1]
As mentioned, one of the advantages of a corporate or LLC structure is that the business is a separate legal entity from its owners. However, this separation could be jeopardized if the company does not hold annual meetings and obey other legal formalities.
State law dictates many procedural requirements for annual corporate meetings, including notices, quorum rules, and whether the meeting can be held virtually. State laws also govern the articles of incorporation and bylaws that contain annual meeting requirements.
Our experienced Austin business attorneys can help ensure that your corporation or LLC complies with all requirements related to its annual meetings or other formalities required by state law or the LLC operating agreement. Book a call to discuss your corporation’s or LLC’s annual meeting.
[1] Annual Meetings and Proxy Requirements, U.S. Secs. & Exch. Comm’n (Apr. 6, 2023), https://www.sec.gov/education/smallbusiness/goingpublic/annualmeetings.
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