During these unprecedented times, dealing with COVID-19 and the resulting social and economic disturbance, it seemed timely to touch base with our readers regarding special procedures and provisions regarding managing a business during an emergency. This same advice however would be equally applicable to management of a business during or after a natural disaster or other similar event. For the most part the tips contained herein apply to both businesses and nonprofits.
Significant decisions will have to be made for many businesses and nonprofits in the next few weeks – however, amidst the stress and workload that business owners and managers are under right now it’s important to ensure that businesses are still run in accord with applicable law and their own governing documents to avoid legal issues down the road.
The most important takeaway – make sure that governing documents are read carefully and procedures or requirements are followed meticulously, and in absence of a provision in a governing document make sure that the action you wish to take is allowed under the applicable state law.
Telephonic & Video Meetings or Digital Voting
Most business entities allow for meeting by telephone or via-videoconferencing. However, some older businesses, created before these were common business tools, may not include these as acceptable methods for Board or Management meetings. The same goes for taking votes via email or other online means – it is important to double check that this is allowed so that the Board or Management doesn’t undertake an action which was not properly authorized.
Even if these digital methods are allowed, double check your governing documents! A common “trap for the unwary” is that votes or meetings may be allowed digitally but such meetings may require either: a higher than normal percentages of members to be present for a digital vote; a higher than normal number of digital votes; or, that consent be unanimous in order to authorize some or all actions of the business or nonprofit entity.
Proper Notice of Meetings
Management during any emergency is fast-paced and focused on “just getting it done.” However, it is extremely important to ensure that a rushed meeting or vote isn’t an improper or invalid vote to authorize a specific action or undertaking. Most business and nonprofit governing documents specific types of notice that must be given before a meeting of a Board or Committee and further there are often specific periods of time before a meeting can take place.
Special Provisions for Management in an Emergency
Some businesses and nonprofits may have provisions in their governing documents relating to management during an “emergency.” However, it is important to first read carefully to find whether “emergency” is defined in the applicable governing document, and further, whether the situation meets that definition. Generally, these kinds of provisions have specific circumstances under which they can be used.
However, if these provisions are applicable, they can often be very useful. Such emergency management provisions may allow for temporary board members to be appointed, lower the number of votes needed to authorize a specific action, reduce or change the notice required for a meeting, or other changes to help manage a business or nonprofit during the defined emergency.
If All Else Fails, Ratify!
If it comes to light later on that there was a situation where governing documents were not strictly adhered to and therefore an action might have been taken that was not fully or correctly authorized, then in many cases, the mistake can be corrected by having the Board or other entity ratify the action after the fact. This is a way of saying, “we realized there was a technical error, but we wish to confirm the decision or authorization of the action taken.” Don’t just leave an unauthorized action hanging, waiting to cause trouble in the future.
Just make sure that you adhere strictly to procedure when ratifying an action – further, often there could be additional requirements to ratify an action when it was not properly authorized in the first place. Finally, watch out – not everything can be ratified after the fact.
As always, if you are in doubt, contact a qualified attorney for advice on these governance matters.
Redding Law, PLLC intends this educational article to be an overview of a legal document, idea, or theory. The reader should note that this overview is specific to Texas and Texas laws and is not intended to be legal advice for any person or situation. To receive additional copies of this newsletter or permission to reprint any portion please contact Redding Law, PLLC.