When is Email Notice Not Notice?

June 5, 2015

The California General Corporation Law governs how notice of stockholder meetings must be given. This information is of vital importance to all California corporations. It is important to note that while email notice is allowed, it is not allowed under all circumstances.

California law does allow email notice under certain circumstances. Section 601(b) provides that, ¨Notice of a shareholders' meeting or any report shall be given personally, by electronic transmission by the corporation . . . .¨ This law also says that notice is deemed to have been given when it has been sent through an electronic transmission by the corporation. However, this law is also clear that in order for electronic notice to be good enough, it must also comply with Section 20 of the Corporations code.

The question, then, is what does Section 20 require? First of all, it defines an electronic transmission by the corporation as being a fax, a posting on an electronic message board or network that meets certain qualifications, or other means of electronic communication. It also requires that the electronic communication be to a recipient who has provided an unrevoked consent to the use of those means of transmission for communications under or pursuant to this code. This seems to mean that in order to use email to provide notice, the shareholder must have explicitly granted permission for the corporation to do so. It is also worth noting that a blanket consent to electronic communication is likely not good enough. Since so many different types of communication can constitute electronic communications under the statute, the shareholder must have explicitly consented to the type of electronic communication being used. In the case of email communication, that would require explicit consent to email communication. Finally, in order for electronic notice to be sufficient, there must be a record created of the transmission that is capable of being retained, retrieved, and reviewed. This record must be clearly legible.

There are additional requirements to be met if the recipient is an individual shareholder who is a natural person. In these cases the consent to the transmission must be preceded by or include a clear written statement to the recipient that details: (1) any right of the recipient to have the record provided or made available in a non-electronic format, (2) whether the consent applies only to a single transmission, a category of transmission, or all communications from the corporation, and (3) what the recipient must do in order to withdraw consent.

This all means that electronic notice can be sufficient, but only where it has been agreed to and the person agreeing to it has a full understanding of when he or she will be receiving electronic notice and what sorts of communications will be coming in electronic form. In the long term electronic notice may still be the ideal way for a corporation to communicate, but it is not as simple as just starting to do it. Instead shareholders must be convinced it is the right way to go.