California has amended its corporations law to accommodate the SEC's e-proxy rules. The amendment permits corporations to comply with the annual report delivery requirements under California law by complying with the federal rules permitting the electronic delivery of annual reports and proxy statements without prior shareholder consent. The amendment eliminates a conflict between California and federal laws that had stymied certain corporations from taking full advantage of the technological improvements and cost savings afforded by the SEC's e-proxy rules.
Section 1501 of the California Corporations Code requires that certain corporations send an annual report to their shareholders. This requirement applies to corporations formed under the laws of California, as well as any corporation having its principal executive office in this state or customarily holding board meetings in this state. Section 20 further requires that an electronic transmission to a shareholder shall be valid only if the shareholder has consented to the use of this means of transmission. The requirement for actual prior consent under California law conflicted with the SEC's e-proxy rules which allow electronic delivery of annual reports and proxy statements and require delivery of paper copies only when requested by the shareholder. As a result, California law limited the ability of certain corporations to reap the full benefit of the SEC's e-proxy rules.
As amended, Section 1501 provides that the annual report delivery requirement shall be satisfied if a corporation with an outstanding class of securities registered under Section 12 of the Securities Exchange Act of 1934 complies with the SEC's e-proxy rules with respect to the furnishing of an annual report to shareholders. In general, the SEC's e-proxy rules require public companies to post their annual reports and proxy statements online and either to deliver paper copies or to provide shareholders with a paper notice informing them that the materials are available online and explaining how to access the materials, unless a shareholder requests a paper or e-mail copy.
E-proxy is not appropriate for every corporation. Although electronic delivery can reduce printing and mailing costs, the latest e-proxy statistics show that electronic delivery generally results in a 73% drop in the number of retail accounts voting and a 52% drop in the number of retail shares voting.