Should Your Corporation Have Emergency Bylaws?

The current COVID-19 pandemic has highlighted the importance of emergency planning for businesses. For example, physical limitations or governmental action may prevent directors from meeting or attaining a quorum or may cause key members of management to be unreachable or unable to act on behalf the corporation. Several states, including California and Delaware, allow corporations to adopt emergency bylaws to address these types of issues. Depending upon the state law, emergency bylaws may address such issues as:

• Procedures for calling a meeting of the board of directors;
• The designation of additional or substitute directors; and
• Changes in the quorum requirement for board meetings.

Adopting emergency bylaw provisions can prevent the corporation from being paralyzed when the need for swift action may be most needed. In addition, some state laws provide immunity to directors, officers, employees or agents for actions taken in good faith.

In addition to authorizing emergency bylaws, some states, including California, have enacted statutes empowering corporations to take specified actions in an emergency. California's statute, for example, empowers a corporation (subject to any emergency bylaw) to take the following actions necessary to conduct the corporation's ordinary business operations and affairs:

• Modify lines of succession to address the incapacity of any director, officer, employee or agent resulting from the emergency;
• Relocate the principal office of the corporation, designate alternative principal or regional offices, or authorize officers to do so;
• Give notice to a director or directors in any practicable manner under the circumstances, including by publication and radio; and
• Deem one or more officers present at a meeting of the board to be a director, in order of rank and within the same rank in order of seniority, as necessary to achieve a quorum.

The California General Corporation Law does include a significant limitation. During an emergency, a board may not take any action that requires the vote of the shareholders or otherwise is not in accordance with the corporation's ordinary course of business, unless the required vote of the shareholders was obtained before the emergency.

State laws vary and Allen Matkins corporate attorneys are available to advise on whether emergency bylaws are authorized, what they can provide and other corporate actions that may, or may not, be taken during an emergency.