Although amendments to the Commercial Law regarding the possibility for shareholders to participate in meetings using electronic means of communication have been discussed for a long time, the state of emergency due to COVID-19 in Latvia and social distancing restrictions require the legislator to act immediately.
The beginning of the year is busy time for companies: not only there is a necessity to make important and quick decisions regarding the emergency situation, but also annual shareholders’ meetings need to be held to approve financial reports. Taking into account urgency of the situation, on 20 March, the Parliament (Saeima) adopted amendments to the Commercial Law. Although quick amendments ware related to COVID-19, they will continue to apply once the emergency situation ends as well.
Amendments to the Commercial Law provide for significant innovations:
- The right to vote in written form before the meeting;
- The right to participate in meetings by electronic means;
- Also complete transition to e-meetings is possible;
- Electronic process of board and council meetings has been facilitated by simplifying the requirements for signing minutes of board and council meetings.
Remote voting before the meeting
Amendments stipulate that shareholders’ may vote in written form at least one day before the meeting. To exercise these rights, shareholders’ are not obliged to request it nor it has to be specifically provided in the articles of association.
Shareholder may ask the company to acknowledge receipt of the vote to be sure that it has been received.
When convening a meeting, the notice must state that it is possible to vote at a distance and specify:
- the procedures and terms within which this right is to be exercised (for example, by indicating the postal or e-mail address to which the vote is to be sent and the date by which this must be done);
- requirements for the identification of a shareholder (for example, with simple signature, secure electronic signature or notary certified signature).
If a shareholder has voted before the meeting, this does not prevent him / her from attending the meeting in person or participating in the meeting remotely (using electronic means of communication) and accordingly also participating in the voting at the meeting. In this case, the vote previously cast by the participant shall be annulled and the vote cast during the meeting shall be taken into account.
Participation in the meetings by electronic means
COVID-19 pandemic inevitably means the wider use of technology in business environment. Amendments to the Commercial Law also stipulate that meetings of shareholders may be held in part or in full remotely by electronic means (for example, in videoconferencing mode using Zoom, Skype, etc.).
The right to participate and vote in the meeting of participants by electronic means can be exercised in three cases:
- if The Board offers such an opportunity to members on its own initiative;
- at the request of the shareholders, if the shareholders together represent at least 20 per cent of the share capital of the company and the articles of association do not provide for a lower representation rate,
- by agreement of the shareholders and by providing for such a possibility in the company's articles of association.
The requirements for the identification of members and the procedure by which members may exercise this right are determined by the board of the company. A shareholder who votes before the meeting of the shareholders or participates in or votes at the meeting of the participants by electronic means of communication is deemed to be present at the meeting of the participants.
The amendments provide for the right of shareholders to decide on a full transition to e-meetings, which excludes the right to attend the meeting in person and essentially provides for the obligation to participate and vote in the meeting electronically.
In order to protect minority members, preventing the majority of shareholders from determining the procedure of the shareholders' meeting, which potentially prevents any of the shareholder from participating in the meeting and exercising their rights, it is stipulated that e-meetings can be organized only if such procedures are included in the articles of association.
In addition, the adoption of such amendments to the Articles of Association will require the consent of all shareholders. At the same time, companies have the opportunity to determine which issues can be discussed in the form of e-meetings, but which will still require a face-to-face meeting (e.g., share capital increase, amendments to the articles of association, liquidation, reorganization, etc.).
By Alise Valdemare, Associate, and Linda Lielbriede, Legal Assistant, BDO Law