New North Carolina Executive Order Addresses Nonprofit Corporation Member Meetings During the COVID-19 Crisis

New North Carolina Executive Order Addresses Nonprofit Corporation Member Meetings during the COVID-19 Crisis

By Peter Mattocks

Many nonprofits in North Carolina are on the front lines of the COVID-19 crisis struggling to meet increased demands for their services and may not be focused on logistical problems related to having member meetings.

The North Carolina Nonprofit Corporation Act (the “Act,” as set forth in Chapter 55A of the North Carolina General Statutes) provides default rules and defines the bounds of how member and board meetings may be conducted.

Section 55A-8-20(b) of the Act already permits directors of nonprofit corporations to participate in board meetings remotely. There is no parallel in the Act’s provisions on member meetings, and in fact, Sections 55A-7-01 and -02 of the Act state that annual and special meetings of members are to be held at a “place” stated in or fixed in accordance with the corporation’s bylaws. This language suggests, but does not definitively state, that annual and special member meetings can only be held on an in-person basis and not remotely. The language creates a problem for nonprofits given the Gov. Cooper’s prior Executive Orders (and municipal orders) limiting mass gatherings during the COVID-19 crisis to no more than 10 people.

On April 24, 2020, the governor issued Executive Order 136 (“Authorizing and Encouraging Remote Nonprofit Corporation Member and Board Meetings During the COVID-19 State of Emergency”). The Order intends to facilitate holding of meetings of members during the COVID-19 crisis.

Executive Order 136 provides that a nonprofit corporation that holds, commences or sends formal notice to its members of any annual or special meeting of its members under Section 55A-7-01 or -02 of the Act may conduct such meetings as follows:

I. During the COVID-19 state of emergency, the board of a nonprofit corporation may, in its sole discretion, determine that annual, regular or special members’ meetings may be conducted solely by means of remote communication and remote balloting (i.e., a corporation needs to have both a virtual member meeting and remote balloting), subject to the following conditions:

1. 1. The corporation’s members have the right to participate in any such meeting via remote communication.
   2. The members shall be given the opportunity to vote on any matters considered during the meeting by ballot submitted by electronic transmission in accordance with Section 55A-7-08.
2. For any meeting carried out pursuant to the Order:
   1. Any party authorized by the board to preside or otherwise carry out responsibilities at such meeting shall be permitted to do so by means of remote communication.
   2. For purposes of Sections 55A-7-01, -02 and -05 of the Act, the place of the meeting of members shall be deemed to include the method of remote communication and balloting through which members may participate in a meeting held solely by means of remote communication.
   3. To the extent a members’ meeting is held at a physical location, the board may limit the number of in-person attendees to comply with the governor’s Executive Orders restricting mass gatherings.
3. The Secretary of State is directed that member meetings held by remote communication in accordance with the Order do not, by reason of having been held by remote communication, fail to comply with the Act.

The Order is not to be construed to mean that members’ meetings held by remote communication would have failed to meet the requirements of the Act but for the Order. Thus, the question of whether a remotely conducted annual or special member meeting is permissible is not resolved here.

The Order is effective as of April 24, 2020, for 60 days; however, it will be automatically rescinded if the State of Emergency in North Carolina is lifted. It is possible that further Executive Orders will be issued providing further clarity and relief to nonprofit corporations dealing with governance challenges during the COVID-19 crisis.

This article is for educational purposes only and is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney. This article was originally published on the NCBA Business Law Section Blog on April 30, 2020, and has been republished here with the consent of the North Carolina Bar Association Business Law Section.

Please contact Ed Chaney at echaney@schellbray.com or Peter Mattocks at pmattocks.com for more information about Schell Bray's Tax-Exempt Organizations and Philanthropy practice.