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 meetings in accordance with their governing documents.
What Is the Purpose of a Corporation’s Annual Meeting?
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, but it typically addresses 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 discussion and review of the previous year’s financial performance. Some of the 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:
- Amending company bylaws
- Reorganization, including merger and acquisition deals or creating a subsidiary
- Asset sales
- Issuing securities
- Determining executive salaries and benefits
- Changing shareholders’ rights
- Dividend payments
- Dissolving the corporation
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.
What Is the Purpose of an LLC Annual Meeting?
As mentioned, an LLC operating agreement may require an annual meeting 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 occasionally convene, including the following:
- Give owners a forum to discuss strategy, ownership, and issues facing the company
- Establish a record of key company events, decisions, and member voting records, which can be useful internally and externally (e.g., documentation for the Internal Revenue Service or a state licensing board)
- Measure progress (or lack thereof) on previously decided plans and proposals
- Address leadership changes, operating agreement amendments, and the addition or removal of members
- Promote good communication and decision-making processes
- Have a CPA or attorney present to address questions related to taxes, accounting, and legal issues
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 truly legally separate from its members and is being run well.
How to Hold an Annual Meeting
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 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:
- Give written notice to shareholders at least 10 days prior to the meeting specifying when and where it will take place and what will be covered
- Have a quorum (typically more than one half) of shareholders present
- Keep meeting minutes that comply with disclosure rules in the bylaws
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]
Get Step-by-Step Legal Guidance for Your Corporate Meetings
As mentioned, one of the advantages of a corporate or LLC structure is that the business is a separate legal entity from its owners. But this separation could be jeopardized if the company does not hold annual meetings and obey other legal formalities.
State law dictates many of the 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 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. For legal advice about your corporation’s or LLC’s annual meeting, schedule a consultation.
[1] Annual Meetings and Proxy Requirements, U.S. Secs. & Exch. Comm’n (Apr. 6, 2023), https://www.sec.gov/education/smallbusiness/goingpublic/annualmeetings.
