Annual Meeting of Shareholders (For Start-Ups)

Most state business statutes (e.g., Section 211 of the Delaware code) require that all corporations incorporated in that state hold an annual meeting of the shareholders. The principal purpose of the meeting is for the election of directors (but any other business properly brought before the meeting may be transacted). This requirement cannot be evaded by provisions in the bylaws.FN1

There are four important caveats here. First, the shareholders do not need to actually physically convene in one location. A meeting by video or phone conference will suffice. Second, there does not need to be any special notice (absent any mandate in the bylaws or certificate of incorporation) to the shareholders so long as shareholders waive notice and consent to the holding of the meeting (note that meetings of the shareholders are usually subject to somewhat technical notice requirements). Third, although not all shareholders need to participate, a quorum - usually defined in the bylaws as a majority of the shares permitted to vote (in no case can it be less than one-third of the shares permitted to vote under Delaware law) - is necessary for any meeting action to have force. Fourth, and most importantly, IF there is unanimous consent (this should be evidenced by executed document) as to the election of the Directors, there is no need to hold the annual meeting at all (i.e., unanimous consent functions "in lieu of an annual meeting" as the statute says).FN2

As already indicated, any other proper business may be transacted at the annual meeting.FN3

So why bother? Failure to hold the meeting does not result in dissolution of the corporation or invalidate subsequent corporate action. Instead, if the corporation fails to hold an annual meeting within 30 days after the designated date or if no date has been designated within 13 months of last annual meeting (or date of incorporation) any stockholder or director may apply to the DE Court of Chancery for an order requiring the meeting to be held.

More generally, however, especially with respect to start-ups and other emerging companies, an annual meeting is 1) evidence that the corporation is not just a shell for the personal interests of a handful of people and 2) a cost-effective guard against future claim(s) that certain corporate decisions did not properly reflect  shareholder interests. It's an easy meeting to transact and document (most start-ups will just need 1)  a waiver of notice and consent signed by all the shareholders and 2) Minutes of the Meeting which identify the directors who have been elected (signed by the "Chair of the Meeting" (an officer or whoever else the bylaws permits to chair the meeting)) and provides some level of protection in the event of a subsequent shareholder suit.

FN1. The location (it can be remote) and time of this annual meeting is built into the bylaws or chosen by the directors if the bylaws are silent (typically, though the timing is linked to either the date of the prior year's annual meeting or the end of the corporation's fiscal year and the applicable state statute will generally set the corporation's principal office as the default meeting location). Note, however, that nearly all statutory allowances given to directors (with respect to choice of location or any matter, really) are qualified (at least under Delaware law) by a generalized rule of equity whereby a court may subsequently find a board action inequitable even if it technically complies with statutory requirements if its implementation compromised a shareholder's ability to participate.

FN2. Caveat to the caveat: In the event that consent from the shareholders is less than unanimous, action by written consent (rather than an actual in person meeting) is still permissible if all of the directorships are vacant and need to be filled by such action.

FN3. Note also that "special" meetings of the stockholders may be called from time to time, customarily by the board of directors but also by any such person as is authorized to call a meeting in the certificate of incorporation or by the bylaws.