Governance/Risk Management

Five Steps for Collecting Stockholder Consents by Email

Authors: StartupPercolator

Collecting stockholder consent by email can be more complicated than collecting director consent by email. If your company is incorporated in a state that permits stockholders to consent by electronic transmission, developing a process for collecting these consents is key to ensuring that the stockholder action is effective.

Generally, the stockholders of a corporation formed in Delaware may take any action that is permitted to be taken at a meeting by a written, signed and dated consent. Under Delaware law, a stockholder’s consent by electronic transmission is deemed to be a written, signed and dated consent if the electronic transmission is delivered with sufficient information for the company to determine: (1) that the electronic transmission came from the stockholder, and (2) the date upon which the stockholder transmitted the electronic transmission.

To ensure that an action is effectively approved by stockholders in a Delaware corporation, here are some practical steps for obtaining email consents:

  1. Contact Information. The attorneys in our Emerging Companies & Venture Capital group will often draft stockholder resolutions for email consent. To facilitate circulation of the resolution, keep the list of stockholders and their email addresses up to date. If the company is conducting an offering with a rolling close structure, make sure the company has received both the necessary investment paperwork and capital contribution for new investors. Consent should not be solicited from any investor who has not met all the conditions to become a stockholder.
  2. Circulating the Resolutions. The consent must contain a sufficient amount of information to identify the action(s) to which the stockholder is consenting. It is good practice to include the recitals and resolutions in the body of the email (or at least as an attachment), and instruct the stockholders to reply or reply all directly to that email. Be sure to include any exhibits referenced in the resolutions as well. Keeping the resolutions and the consents in the same email chain also keeps the paper trail tidy for step 4 below. If you send a follow-up reminder email, make sure you include the recitals and resolutions again or direct the stockholders to reply to the initial email.
  3. Obtaining Consents. The consent must contain enough information so that the company can determine that it was transmitted by the stockholder or a person authorized to act for the stockholder. This means the person writing a reply email needs to identify in what capacity he or she is consenting and on whose behalf. This is mainly an issue for a holder of a proxy or a stockholder who is an entity. Remind stockholders to reply with the information that they would usually include in a signature block. For example, a reply should say something like, “I, John Smith, approve in my capacity as Trustee for ABC Trust.”
  4. Recordkeeping. Each consent by electronic transmission must be reproduced in paper form (together with the resolution being voted upon) and inserted into the company’s corporate book. Make sure that whoever is maintaining the company’s corporate book receives all consents by email or other electronic transmission.
  5. Notice of the Action. If fewer than all of the stockholders consent to an action, Delaware law requires that prompt notice of the action be given to the non-consenting stockholders. This notice is typically called a 228(e) notice, in reference to Section 228(e) of the Delaware General Corporation Law. Keep a copy of the 228(e) notice and a record of the recipients with the company’s corporate book.

The attorneys in our Emerging Companies & Venture Capital practice can advise you on tailoring a stockholder consent process that complies with the laws of the state in which your company is incorporated and any relevant provisions in your company’s charter documents.

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