A WALKTHROUGH OF AN ANNUAL MEETING

By Justin R. Coleman, Esq.

Simms Showers, LLP

All organizations hold meetings throughout the year.  These meetings may be a lunch meeting of the partners of a landscaping business, a congregational meeting of a local church, or the annual stockholders’ meeting of Berkshire Hathaway in Omaha, Nebraska.  These meetings may happen as frequently as needed throughout the year but should happen, and for corporations they are required to happen, at least annually.  This article will walk you the reader through the basics of a typical annual meeting and what procedures need to be followed to assure that your entity is meeting state requirements.

1. STATE PROCEDURAL REQUIREMENTS

Corporations (both for-profit and non-profit) and Limited Liability Companies (“LLCs”) are legal entities created by state law and because of this they must follow the laws of the state in which they are organized.[1]  One of those state law requirements is an annual meeting of the voting members of the entity, as defined by its governing documents.  For purposes of this article, I will be using terms generally associated with non-profit corporations but the basic concepts would apply to any other entity regardless of corporate structure.

1. VOTING MEMBERS

The “voting members” of a non-profit corporation are identified in its Articles of Incorporation and their voting rights and privileges are further defined in the Bylaws.  If the corporation states that it has members, then it must hold at least an annual meeting of the members for the transaction of business.

Most non-profit corporations typically do not have members and its Board of Directors serve as the voting members for the transaction of corporate business.  Most churches do have members with varying degrees of voting privileges depending on their governance structure and polity.  Although having voting membership in a church does require some additional internal administrative work for the church such as keeping membership rolls, sending notices, or providing letters of transfer for those members who transfer to another church, there are a number of 21^st century liability risk management protections that a church can take advantage of to reduce the likelihood of disputes and conflicts between members and the church (which are discussed in greater depth in other newsletter articles written by this office).

1. NOTICE

For the annual meeting to occur, the voting members must be given sufficient notice of the date, time, and place of the annual meeting.  Typically, most corporate bylaws will state how many days or weeks in advance notice of a meeting must be given and the method of how the notice is published (i.e. written letter, e-mail, announcement from the pulpit during worship service, placed in the weekly bulletin, etc.).  If the Bylaws are silent as to notice of meetings, then entity must follow their state’s law regarding notice.  For example, under Virginia’s Non-Stock Corporation Act:

A corporation shall notify members of the date, time and place of each annual and special members’ meeting. Such notice shall be given no less than 10 nor more than 60 days before the meeting date except that notice of a members’ meeting to act on an amendment of the articles of incorporation, a plan of merger, domestication, a proposed sale of assets pursuant to § 13.1-900, or the dissolution of the corporation shall be given not less than 25 nor more than 60 days before the meeting date. Unless this chapter or the articles of incorporation require otherwise, the corporation is required to give notice only to members entitled to vote at the meeting.

VA Code Ann. § 13.1-842(A)(1) (emphasis added).

Failure to give proper notice of a members’ meeting in accordance with the entity’s bylaws or according to state law can result in the court voiding any actions or decisions made at those meetings.  Although some civil cases have raised the issue of unconstitutional judicial interference into church member meetings, several courts have found that ruling on questions of due process procedures like proper notice of meetings does not involve constitutionally impermissible “questions of faith and doctrine.”[2]

1. LOCATION

The corporation can determine when and where the annual meeting will take place and will state it in the Bylaws.  Typically, most corporations schedule their annual meeting in the months before or just after its fiscal year ends.  An annual meeting does not need to occur in the same state as it is incorporated or even its principal address; however, most if not all nonprofits and churches will hold their annual meetings at their facilities.

1. QUORUM AND VOTING

A “quorum” is the minimum number of voting members that must be present at a meeting to be able to transact business.[3]  Similar to Notice requirements, state law permits an entity to state in its Bylaws what number and/or percentage of members are necessary to establish a quorum for a meeting.  If the Bylaws are silent, then the state law establishes quorum for meetings.  For example, under Virginia’s Non-Stock Corporation Act:

The bylaws may provide the number or percentage of members entitled to vote represented in person …, or the number or percentage of votes represented in person …, which shall constitute a quorum at a meeting of members. In the absence of any such provision, members holding one-tenth of the votes entitled to be cast represented in person or by proxy shall constitute a quorum. The vote of a majority of the votes entitled to be cast by the members present … at a meeting at which a quorum is present shall be necessary for the adoption of any matter voted upon by the members, unless a greater proportion is required by this Act or the articles of incorporation. ….

Va. Code Ann. § 13.1-849(A). (emphasis added)

As defined, quorum is simply the minimum number of voting members that must be present to transact business.  For for-profit corporations, establishing quorum for a stockholders meeting is typically not an issue as most stockholders want to attend to know how the company is doing and the leadership’s forecast for the coming year in regards to new or updated products.

For churches, establishing a realistic quorum can sometimes be a balancing act.  Although the goal is to have 100% participation by its members, many in leadership know that most members typically do not view church business meetings as a high enough priority to adjust their personal schedules so that they can attend.  Thus, leaders must find a number or percentage of members that they are comfortable in making decisions on behalf of the church but not setting the number or percentage so high that it cannot attain quorum for regularly scheduled meetings.

As evidenced in the above Virginia statue, unless the state statute itself or the entity’s governing documents state otherwise, membership voting is majority rule.   This means that a proposed action is approved if more members voted for the action than those who opposed it and abstained from voting altogether.

1. MATTERS FOR CONSIDERATION AT AN ANNUAL MEETING

As an annual meeting is a state requirement for all non-profit corporations, we regularly are asked by our new non-profit and church corporation clients what matters must be presented and voted on at an annual meeting.

Our response to these questions is to first have the corporate client look to their Bylaws to determine who its “voting members” are (as discussed in Section I of this article).  Once that body of members are determined, we can then look to what matters require their vote of approval according to the Bylaws.

For an annual business meeting, any matter or action requiring membership voting on an annual or semi-annual basis is typically a matter for vote at the annual meeting.  For example, if the church members approve or ratify the church’s proposed annual budget for the upcoming fiscal year, then the annual budget would be one of those items listed for a member vote at the annual meeting.

Another item that is typically placed on the annual meeting agenda is the election of lay church leaders and officers.  Depending on the church’s governance structure and nomination procedure, the candidates for (or a percentage of) leadership positions (i.e. elders, deacons, council members, committee members and chairs, etc.) will be identified and presented to the members for a vote of election or re-election to the identified leadership position.

Any other item of importance requiring membership vote can be included in the annual business meeting.

Depending on the church’s governance structure and Bylaws, the internal committees or ministries may also present summarized reports to the members of their projects and activities throughout the previous year.

If your entity does not have members or some of the above items do not require a membership vote, then those matters would be presented and voted upon at the annual meeting of your Board.

• MEETING MINUTES

Of likely greatest importance, an individual must make a written record of the annual business meeting (or any other regular or special business meeting).  The meeting must be put into a written format in order to provide objective proof that 1) the meeting actually occurred and 2) the decisions made by the church were in accordance with its Bylaws and/or state law.

Typically, the secretary of the corporation (sometimes called the clerk for churches) is the individual responsible for taking the meeting minutes.  The minutes do not need to include every single word stated throughout the annual meeting (doing so would turn the minutes into War & Peace, depending on the church).   The minutes should however, provide a written record of at least the following:

• The date of the meeting;
• The number of members present to establish quorum;
• That each action followed the proper progression (i.e. motion, second, discussion, and vote);
• A statement that the proposed action was either approved by sufficient vote or was rejected;

If a proposed action was extraordinary in nature or was a close decision, it may be wise for the entity to include a tally of the votes for, against, and abstained from the proposed action with the minutes.

Although not a legal requirement, it is best practice for the secretary or clerk to sign the business meeting minutes.  Because the meeting minutes are viewed as the “voice” of the entity, any decision made during that meeting will become binding on the entity and relied on by both individuals inside the entity and third parties outside the entity.  Thus, the secretary or clerk would be able to testify to validity and accuracy of the minutes should a corporate action ever be questioned.

1. CONCLUSION

As evidenced from the above, although states require an annual meeting of the voting members of an entity, they provide a lot of latitude for those entities as to who is a “voting member,” what matters require a member vote, how notice is provided, and the necessary quorum to transact the entity’s business.  Establishing clear procedures within your governing documents will allow your entity to operate and call meetings in a manner that is consistent with your practices.

Additionally, the entity must keep written minutes of its business meetings, particularly its annual business meetings.  The content and matters presented and voted upon at the annual meeting depend on your entity’s governance structure and those identified items requiring member vote.  Further, it is strongly recommended that the individual who takes those minutes sign them before filing them away in the entity’s records.

Legal Disclaimer:  This Article and related material have been prepared specifically for non-profits and churches seeking general information about annual meetings and meeting minutes.  It is not meant to provide legal advice or substitute for competent legal counsel that can address specifics of each non-profit or church.  Any reader is encouraged to seek appropriately trained and experienced professional legal counsel who specializes in corporate, tax exempt, and church law for questions on or related to these issues.

[1] See Virginia Code Annotated Title 13.1; Maryland Unannotated Code, Corporations and Associations; Code of the District of Columbia Title 29.

[2] Norfolk Presbytery v. Bollinger, 214 Va. 500, 201 S.E.2d 752 (1974).  See also, Cheshire v. Giles, 144 Va. 253, 255, 132 S.E. 479, 479-80 (1926) and Bethlehem Missionary Baptist Church v. Henderson, 522 So.2^nd 1339 (La. App. 1988).

[3] Merriam-Webster.com