The advance notice definition is that it governs how stockholders propose items for a shareholder meeting — both annual and special meetings. The process requires a stockholder to notify the business of their intention to propose an agenda item at the next stockholder meeting. These provisions attempt to prevent a stockholder from simply attending a meeting and raising issues.

In a broad legal sense, notices are utilized to communicate the responsibilities and rights to any interested party. Legal notices can come in a variety of different forms. Any notices that are in writing are simply called written notices. It is important to note that the definition of written notice will vary from state to state and even within a state, especially among different areas of law. Virginia's Landlord Tenant Act, or Va. Code Ann. § 55-248.4, is a proper example of a state law which defines both notice and written notice.

Advance notice provisions generally have two components:

  • Timing
    • Usually set forth a date by which a stockholder must notify the business of the intent to propose the matter
  • Content
    • Identify the list of data and documents that stockholders must submit with the notice

Shareholder activism has become a common occurrence in the corporate environment, attracting daily press from news organizations. As activism becomes ever more popular, the number of legal battles continues to grow over the function and permissible scope of advance notice bylaws. Advance notice bylaws refer to the provisions constituting procedural, timing, and informational qualifications for stockholders looking to nominate directors and other proposals to a stockholder vote.

A common advance notice bylaw mandates that stockholders must submit to the corporate secretary, within 30 days of the annual meeting, any topics to discuss and vote on during the meeting. The proposal to vote for directors or discuss specific business matter is usually accompanied with relevant information regarding the topic or nominee. The information supplied to investors is intended to educate and bring awareness to open issues.

As investors become ever more sophisticated with increasingly complex strategies, so have the requirements under the advance notice bylaws to track short interests, derivatives, and specific shareholder details. The requirements are usually not required by the federal securities regulations but are provided by the board of directors to all shareholders as it's deemed relevant and pertinent. Additionally, as businesses have acknowledged pressure from governance groups and activists to allow stockholders to call special meetings, they also respect the fact that the advance notice process is still relevant, and the two formats need to follow specific protocols.

In other words, most corporations appreciate the fact that a special meeting may need to occur, but they also want to respect the prior processes created around the advance notice process. To a certain extent, the two processes need to be intertwined to keep order and maintain formal processes.

Regular Review of the Bylaws

It currently seems to be an uphill battle for advance notice bylaws. As the bylaws become more increasingly complex, businesses should be careful to consider the legal and business rationale for the procedural and informational requirements that are put on shareholders, as they may backfire. Also, it's important for businesses to occasionally review their own advance notice bylaws to ensure that they're not becoming overly cumbersome.

Consider that most courts tend to view proactive changes to the bylaws much more favorably than the changes made by an upset shareholder. In other words, if the board of directors notice something that is not ideal in the bylaws, it's a good idea to update the bylaws before the situation turns into a crisis.

As more businesses adopt written consent rights and special meetings, a regular review of the bylaws is highly recommended to ensure that the bylaws have been updated and well-drafted. The main benefit of constantly updating the bylaws is to decrease the need for significant modifications into written consent provisions or special meetings. Consultants and advisors to the business should take a thoughtful approach and find the balance between providing shareholders with everything but the kitchen sink versus what a reasonable investor would need to make a well-educated vote.

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