Virtual Meetings for efficiently adopting shareholders’ decisions

While it is true that the law is amended to adjust to reality, it is also true that legal reforms are rarely achieved "in real time".  The Mexican Business Organizations’ Law ("Ley General de Sociedades Mercantiles") (the Law) is no exception. A law enacted in 1934, that has been amended on a few occasions and with each amendment has embraced better practices and conformations to different historical realities, but also, which amendments come long after a new reality has been tested.  A recent example is the incorporation, until 2016, of the use of electronic means for the formation and management of the then new Simplified Stock Companies (Sociedades por Acciones Simplificadas), a regulation that undoubtedly marked a milestone in terms of the use of available technology and ease of processes.

Currently, under a framework of forced adaptability to different changes resulting from COVID-19, there is a bill to amend the Law and the Federal Civil Code, drafted by the Mexican Bar of Attorneys (Barra Mexicana de Abogados) that proposes to allow commercial entities (partners and shareholders of commercial companies and partnerships), to make decisions regarding their company’s business through electronic means, unlike the traditional and rigid onsite meeting.

This opens a window of opportunity, but also, like any innovation, generates hesitation regarding its implementation and the appropriate mechanisms to provide legal certainty.

The bill proposes, in general terms, the following:

- The inclusion in the company’s bylaws of the possibility of holding virtual meetings and sessions of the company’s governing bodies through electronic means, with the same effects as a face-to-face onsite meeting. The rules for this type of meeting will be agreed upon by the shareholders or partners through their corporate by-laws.  
- The proposed electronic means shall allow simultaneous participation of the attendees and their interaction during the virtual meeting’s deliberations, as if it were a face-to-face onsite meeting, safeguarding the attendees voice and voting rights. 
- The recognition that a virtual meeting will be considered held within the corporate domicile.

In connection with the foregoing, the following should be considered:  

            •            Identity and Representation

In most cases, electronic means will ensure the identity of a person, with the sole use of the webcam in the device being used. In addition, to strengthen this practice, it would be recommendable (i) to implement identity controls of the participants, such as, the company should hold a copy of the current official identification of each of the participants who have voting rights; and (ii) to appoint a teller who, at the time of confirming the required quorum to hold a meeting, certifies the identity and voting rights of the person attending the meeting and certifies that such members assisted were present during the occurrence and up to the conclusion of the meeting.

Article 192 of the Law establishes that a shareholder may be represented at a meeting by proxies, in the manner set forth by the company’s by-laws or, in the absence thereof, in writing. It is most common for a shareholder to grant a proxy signed by him/her and two witnesses prior to the meeting. In the case of virtual meetings, it would be important to consider including, as a rule, the obligation of such shareholders who are represented in a meeting, to deliver the proxies and identification of their proxy to the secretary of the company or to the Board of Directors, within a reasonable period prior to the date of the virtual meeting, in order to make such representation valid.

            •            Vote

The bill provides that the electronic means to be used shall allow the simultaneous participation and interaction of the attendees in their deliberations, as if it was a face-to-face onsite meeting.  Regarding the verification of the identity of the shareholders, although the electronic platform may provide the ease to (i) display information to the attendees in the meeting in such way as to expedite their understanding; and (ii) carry out a discussion among the attendees about said information; the development and order of the virtual meeting will depend both, on the rules established by the company for its use and the compliance thereof by the attendees, as well as on the adaptability of the participants to the use of the electronic platform.  

            •            Verification measures

There is no doubt that the recommendation is to record all the virtual meetings for different reasons:  (i) as a measure of verifying the identity of the attendee and the information displayed and subsequently recorded in the minutes; (ii) as evidence, in the event that any resolution adopted at a virtual meeting is challenged (in or out of court); and (iii) for purposes of complying with the company’s rules to conserve information. Furthermore, as an additional precautionary measure, it would be ideal to have both image and audio recordings of the votes cast by each of the attendees in a meeting, clearly stating that their intention was expressed in the course of a meeting.  

Another additional measure to provide legal certainty to virtual meetings is the presence of a notary public who, through an affidavit, can certify (in an objective manner) the development of a virtual meeting.

            •            Protection and veracity 

The proposed bill does not provide regulation on the treatment of the information displayed during the development of a virtual meeting, so it is important to consider including in the company’s corporate by-laws the obligation of the company to have records of the emails of each partner, shareholder or director ; to send via e-mail, in advance to virtual meeting, the information that will be discussed at the meeting and to displayed through the electronic platform used during the development of the meeting; provide, within the corporate by-laws, that the meetings will be recorded and to record and keep the information and the recordings of the meetings, as provided in Article 46 of the Commercial Code.

            •            Minutes of the meetings 

Although the bill facilitates the adoption of decisions by corporate bodies, it does not include any provision regarding the signing of an attendance list to certify the assistance and participation of the shareholders, partners or directors in the corresponding meeting.  Same situation with the minutes of the meeting, so we understand that, according to Article 41 of the Code of Commerce and 194 of the Law, the minutes of the meetings will continue to be drafted and these, as far as corporations are concerned, must be signed by the president and secretary of said meeting.

Final Considerations

The implementation of virtual meetings is certainly an advance and an accurate response to the changes generated by COVID-19 and will be a mean to adopt more efficient decisions using technology. Likewise, this bill will allow companies to have greater certainty regarding their decisions. Some countries that have adopted the use of electronic means are Colombia, Costa Rica, Spain, Uruguay and Peru.

The companies that implement virtual meetings and adopt the necessary technologies for it, may have to suffer a change curve for its acceptance and use and to establish clear rules for holding this type of meetings.

Notwithstanding this progress, if a meeting requires to be formalized according to the Law, it will still be necessary to print, sign and notarize the original minutes that attest to the holding of the meeting.

Finally, consider that this bill refers only to companies that are regulated ruled by the Law and the Federal Civil Code and, as applicable, to the Investment Corporations (Sociedades Ananias Promotoras de Inversión) regulated by the Securities Market Law, and should not be construed as applicable to corporations that place shares in the stock market.

Gabriela Ponce de León
Leonora Olmedo
EY Law