Keeping Corporate Books and Records in the Age of COVID-19

Keeping Corporate Books and Records in the Age of COVID-19 (or how I won the war) …

We are living in this “Time of Covid-19” if not the “Age of Covid-19.” Businesses have been forced to shut-down. Some, more than once. Some may never re-open. The challenges are daunting. But, alas, many businesses continue to operate. Frankly, even businesses that have stopped operating or will no longer operate must still maintain certain records such as tax returns or state corporate filings such as file the annual or bi-annual Statement of Information (officer’s statement and designation of agent for service of process) or similar items.

So, let’s say you are a shareholder, director or officer of a corporation that continues to operate. COVID-19 or no COVID-19, a corporation is still required to maintain corporate records. So sayeth California Corporation’s Code Section 1500 (“Section 1500”) which reads as follows:

“Each corporation shall keep adequate and correct books and records of account and shall keep minutes of the proceedings of its shareholders, board and committees of the board and shall keep at its principal executive office, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each. Those minutes and other books and records shall be kept either in written form or in another form capable of being converted into clearly legible tangible form or in any combination of the foregoing. When minutes and other books and records are kept in a form capable of being converted into clearly legible paper form, the clearly legible paper form into which those minutes and other books and records are converted shall be admissible in evidence, and accepted for all other purposes, to the same extent as an original paper record of the same information would have been, provided that the paper form accurately portrays the record.”

Okay. Section 1500 seems to be hip to the fact that these days many corporate records (e. g., minutes of meetings of shareholders and directors) are typed directly into a computer, forever after to remain in such “electronic form:” “Those minutes and other books and records shall be kept either in written form or in another form capable of being converted into clearly legible tangible form or in any combination of the foregoing.” That’s cool and helpful because, hey, that is basically how it works these days. But let’s take a closer look at the meeting itself, that gives rise to the corporate records kept in such “electronic form.” Can such meetings themselves take place “electronically?” If yes, what law speaks to such a situation?

Chances are that many if not all of the meetings of the shareholders and/or directors are taking place these days on Zoom. For some of the more progressive types, maybe meetings of the shareholders and/or directors were taking place on Zoom or Facetime (or what have you) even BEFORE the pandemic started shutting things down. (Visionaries, no doubt).

Well, I took a gander at Section 1500. Turns out, Section 1 of the legislation that implemented Section 1500 (2004 California Statutes, Chapter 254) reads as follows:

“SECTION 1. It is the intent of the Legislature in enacting this act to meet the requirements of Section 102(a)(2)(B) of the federal Electronic Signatures in Global and National Commerce Act ("E-Sign Act"), to the extent that any provision of this act may be deemed to modify, limit, or supercede the provisions of Section 101 of the E-Sign Act. It is further the intent of the Legislature that a meeting of a corporation or limited liability company shall include a physical location unless the corporation or limited liability company has obtained the consent of all of the shareholders or members of the corporation or limited liability company, as applicable, to conduct a meeting by electronic transmission.”

Well whaddya know! Our honorable congresspersons intended that a meeting of the shareholders or directors (or of the managers of members of a limited liability company) could proceed on Zoom (i. e., by electronic transmission) so long as they all consent. Bada-bing, bada-boom. So, the records can be maintained in electronic form (the trees thank you by the way), and the meeting itself can proceed by electronic transmission (i. e., Zoom, FaceTime, etc., etc.). Well that’s a doggone relief since that is kinda how it’s all happening these days anyways. Sweet.

Editorial note: I am alone in my office as I typed up this article which shall remain in “electronic form” … so I was not wearing my mask. Take that Mr. COVID-19.

-Lawdog