On March 11, 2020, the World Health Organization declared the coronavirus outbreak (“COVID-19”) a pandemic. On March 12, 2020, Governor Whitmer ordered all K-12 schools closed through April 6, 2020 and numerous major sports events, concerts, plays and trade shows throughout Michigan have been postponed or canceled altogether.
As COVID-19 becomes more widespread, community associations are asking how this pandemic could impact the operation and management of community associations and their board of directors. Examples of questions include:
- Can annual meetings be delayed?
- Can annual meetings be held remotely?
- Does the association have sufficient videoconferencing or telephone conferencing capabilities?
- Can the association take action without physically meeting in person?
- Should the Board of Directors postpone, cancel or hold board meetings remotely?
This article addresses these questions and how community members and community associations should respond to a health crisis such as COVID-19.
Delaying Annual Meetings
Many community associations in Michigan hold their annual meeting in the Spring or early Summer of each year to elect directors, provide financial information to the community and generally update the community on actions taken in the previous year and plans for the future. One option to reduce the potential impact of COVID-19 on an association’s annual meeting is simply to postpone the annual meeting. Michigan’s Nonprofit Corporation Act gives some leeway in scheduling the annual meeting. MCL 450.2402 states:
450.2402 Annual meeting of shareholders or members for election of directors and conduct other business; failure to hold meeting at designated time or elect sufficient number of directors; adjournment of meeting; court order to hold meeting or election; quorum.
Sec. 402. A corporation shall hold an annual meeting of its shareholders or members, to elect directors and conduct any other business that may come before the meeting, on a date designated in the bylaws, unless the shareholders or members act by written consent under section 407 or by ballot under section 408 or 409. A failure to hold the annual meeting at the designated time, or to elect a sufficient number of directors at the meeting or any adjournment of the meeting, does not affect otherwise valid corporate acts or work a forfeiture or give cause for dissolution of the corporation, except as provided in section 823. If the annual meeting is not held on the date designated for the meeting, the board shall cause the meeting to be held as soon after that date as is convenient. If the annual meeting is not held for 90 days after the date designated for the meeting, or if no date is designated for 15 months after formation of the corporation or after its last annual meeting, the circuit court for the county in which the principal place of business or registered office of the corporation is located, on application of a shareholder or member, may summarily order that the corporation hold the meeting or the election, or both, and that it is held at the time and place, after the notice, and for the transaction of the business that is designated in the order. At any meeting ordered by the court under this section, the shareholders or members that are present in person or by proxy and that have voting powers constitute a quorum for transaction of the business designated in the order.
Thus, some associations may delay and reschedule their annual meetings to a later date and time that is ‘convenient’ typically within 90 days of the original date (or not more than 15 months since the last annual meeting) due to the language of MCL 450.2402 above. This may give the association additional time to prepare for the annual meeting and have a better handle on the status of the pandemic and best practices for conducting the annual meeting.
Participating in Annual Meetings by Remote Means
While many annual meetings are conducted with everyone physically present, Michigan law allows for members to participate in meetings by electronic means. Michigan’s Nonprofit Corporation Act, specifically MCL 450.2405(1), states:
Unless otherwise restricted by the articles of incorporation or bylaws, a shareholder, member, or proxy holder may participate in a meeting of shareholders or members by a conference telephone or other means of remote communication that permits all persons that participate in the meeting to communicate with all the other participants. All participants shall be advised of the means of remote communication.
Therefore, a member not physically present at a meeting of members may participate by means of remote communication and is considered present in person and can vote if all of the following are met:
- The corporation implements reasonable measures to verify that each person that is considered present and permitted to vote at the meeting by means of remote communication is a shareholder, member, or proxy holder.
- The corporation implements reasonable measures to provide each shareholder, member, or proxy holder a reasonable opportunity to participate in the meeting and to vote on matters submitted to the shareholders or members, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with the proceedings.
- If any shareholder, member, or proxy holder votes or takes other action at the meeting by a means of remote communication, a record of the vote or other action is maintained by the corporation.
MCL 450.2405(4).
Practically speaking, a remote meeting may be conducted via online platforms such as Skype, GoToMeeting or Zoom, but it could also be held by conference call such as freeconferencecall.com. Shifting meetings from in-person gatherings with large groups of people all in the same room to a remote meeting where everyone can participate through remote means may be a prudent decision for community associations during a public health crisis. However, it may not be practical as people may talk over each other or a community association may not have the technological capabilities to conduct a meeting in this fashion. Accordingly, holding a large meeting of the membership solely online may prove challenging.
Taking Action Without Meeting
Instead of conducting a meeting with everyone physically present or by electronic means where everyone is logging in to a website or calling into a conference line, Michigan’s Nonprofit Corporation Act permits community associations to take “action without meeting” if the governing documents have an action without meeting provision. MCL 450.2408 sets forth these guidelines and provides in pertinent part:
(1) A corporation may provide in its articles of incorporation or in bylaws that are approved by the shareholders or members that any action the shareholders or members are required or permitted to take at an annual or special meeting, including the election of directors, may be taken without a meeting if the corporation provides a ballot to each shareholder or member that is entitled to vote on the action in the manner provided in section 404 for providing notice of meetings of shareholders or members. A provision in the articles of incorporation or bylaws authorizing shareholder or member action by ballot shall not preclude calling or holding annual or special meetings of shareholders or members.
(2) The ballot provided to shareholders or members under subsection (1) shall meet all of the following:
(a) Set forth each proposed action.
(b) Provide an opportunity for the shareholders or members to vote for or against each proposed action.
(c) Specify a time by which the corporation must receive a ballot in order to be counted as a vote of the shareholder or member. The time specified shall be not less than 20 or more than 90 days after the date the corporation provides the ballot to the shareholders or members.
(3) An action is considered approved by the shareholders or members by ballot if the total number of shareholders or members voting or the total number of shareholder or member votes cast in ballots received by the corporation by the time specified in the ballots equals or exceeds the quorum required to be present at a meeting to take the action, and the number of favorable votes equals or exceeds the number of votes that would be required to approve the action at a meeting at which the number of votes cast by shareholders or members present was the same as the number of votes cast by ballot. Except as otherwise provided in the articles of incorporation, an invalid ballot, an abstention, or the submission of a ballot marked “abstain” with respect to any action does not constitute a vote cast on that action.
Similarly, some community associations may be able to vote at a polling place, which would include an electronic or online voting place. Similar to the action without a meeting provision, the articles of incorporation or bylaws must permit voting at a polling place. MCL 450.2409 provides in pertinent part:
(1) A corporation may provide in its articles of incorporation or in bylaws that are approved by the shareholders or members that any action the shareholders or members are required or permitted take at an annual or special meeting, including the election of directors, may be taken without a meeting if the corporation provides a ballot to each shareholder or member that is entitled to vote that allows the shareholder or member to vote at a polling place or at polling places established by the corporation that are reasonably accessible to the shareholders or members. The corporation shall provide notice to each shareholder or member that is entitled to cast a ballot at a shareholder or member vote held at a polling place or at polling places under this subsection within the same time and in the same manner provided for notice of meetings of shareholders or members under this act. The notice shall describe each proposed action that is included on the ballot, the location of the polling place or places, and the times when the polling places are open. A provision in the articles of incorporation or bylaws that authorizes shareholder or member action by ballot cast at a polling place or at polling places does not preclude the calling or holding of an annual or special meeting of shareholders or members.
(2) A ballot authorized under subsection (1) shall describe each proposed action and provide an opportunity for a shareholder or member to vote for or against the action.
(3) An action is considered approved by the shareholders or members by ballot under this section if the total number of shareholders or members that vote or the total number of votes cast by shareholders or members at the polling place or polling places during the period when the polls were open equals or exceeds the quorum required to be present at a meeting to take that action, and the number of favorable votes equals or exceeds the number of votes that would be required to take the action at a meeting at which the number of votes cast by shareholders or members present was the same as the number of votes cast by ballot. Except as otherwise provided in the articles of incorporation, an invalid ballot, an abstention, or the submission of a ballot marked “abstain” with respect to any action does not constitute a vote cast on that action.
Many community associations already take action without a meeting to conduct important business, such as amending the governing documents. Voting at a polling place is a relatively new concept that is not frequently utilized by many Michigan community associations. Accordingly, if the governing documents permit the above methods of voting, a community association should consider using them in lieu of holding an in-person meeting. However, many governing documents do not permit directors to be elected in this manner, so a community association should review their governing documents to determine if there are any restrictions on decisions that can be made outside of a meeting. Finally, if a community association does not have the above provisions in their articles of incorporation or bylaws, they should consider amending their documents to include the same when it is safe for the association members to again meet in person.
Board Meetings
In contrast to holding an association meeting, it is much easier for the board of directors of a community association to continue to operate remotely. Accordingly, we recommend that the board of directors continue to meet remotely as a community association will still need to function during these challenging times to provide essential services and enforce the governing documents. In most cases, a board of directors can simply hold a meeting via telephone conference. MCL 450.2521(3) provides as follows:
Unless otherwise restricted in the articles of incorporation or bylaws, a member of the board or of a committee designated by the board may participate in a meeting by means of conference telephone or other means of remote communication if all individuals who are participating in the meeting can communicate with the other participants. Participation in a meeting under this subsection constitutes attendance in person at the meeting.
Accordingly, it is relatively easy for a board of directors to continue to hold meetings and make decisions, while still practicing social distancing by using a service such as freeconferencecall.com. Similarly, MCL 450.2525 allows for a board of directors to make decisions via e-mail through unanimous consent. Specifically, MCL 450.2525 provides as follows:
Unless prohibited by the articles of incorporation or bylaws, action required or permitted to be taken under authorization voted at a meeting of the board or a committee of the board may be taken without a meeting if, before or after the action, all members of the board then in office or of the committee consent to the action in writing or by electronic transmission. The written consents shall be filed with the minutes of the proceedings of the board or committee. The consent has the same effect as a vote of the board or committee for all purposes.
Accordingly, if a board is unable to hold a meeting via telephone or video conference, a board can still take action via e-mail with the unanimous consent of the members of the board.
Conclusion
When faced with an emerging health crisis, the association’s board of directors should be proactive in thinking about upcoming annual meetings, board meetings, community events, etc. We recommend an open dialogue with the membership about what the Board of Directors is doing, how annual meetings will be impacted and any steps the association is taking due to COVID-19. Community associations should also review their operations and may wish to consult with legal counsel regarding the association’s options under the law and governing documents of the association. An attorney experienced in community association law can ensure association management proceeds smoothly, even in the face of unforeseen circumstances such as the spread of COVID-19. Similarly, if your community association’s governing documents are outdated, the board should consider updating the governing documents to provide flexibility in the event of another health crisis.
The attorneys of Hirzel Law, PLC focus their practice on condominium and homeowners association law. Our attorneys have extensive litigation and trial experience in state and federal courts involving commercial litigation issues and community association matters. We stand by our clients, offering quality legal representation and promptly responding to our clients’ needs. Contact Hirzel Law online or call 248-986-2290 to learn how our Michigan attorneys can help.
