Electronic communication with shareholders - a brief guide

Electronic communication with shareholders represents an attractive option for many companies. Such communication could lead, naturally, to reduced costs, a more efficient and certain process, and a greener, paperless outcome. Indeed, for those companies conducting a potentially COVID-prompted, root-and-branch review of their methods, shareholder communication may well feature as a priority on the agenda. But what steps would such companies need to take to allow them to communicate with shareholders electronically? To answer that question, we can look to Schedule 5 to the Companies Act 2006.

The two regimes

The first point to note is that the legislation provides for two separate regimes: communications by means of a website and communications in electronic form (otherwise than by means of a website). The main difference between these two regimes is that the principle of deemed consent only applies to communication via a website. As such, the two regimes are perhaps best considered as one regime for websites and another regime for “everything else”. Let's consider them in turn.

Electronic communication by website - checklist

If a company wishes to communicate with its shareholders via a website, there are five general steps to follow.

1. The company should check its Articles of Association. For a company to benefit from the deemed consent of its members, the company's articles, or, alternatively, an authorising resolution, must provide that documents or information can be supplied to the members via a website. If not, the company would only be able to communicate via a website with those members who had provided the company with actual consent for it to do so.
2. If necessary, the company should update its Articles of Association or, alternatively, pass an authorising resolution to provide that the company can indeed supply documents or information to its members via a website. This would then allow for the company to benefit from the deemed consent of its members to communication via a website.
3. The company should then send a request letter to its members and obtain deemed or actual consent. That request letter should state clearly that the effect of a failure by the member to respond to the letter within 28 days will be that the member will be deemed to agree to the receipt of documents or information via a website. Note, also, that a request letter can only be sent once every 12 months. If a member does not respond within 28 days, the company will have obtained that member's deemed consent.
4. After having obtained the deemed or actual consent of its members, the company can publish the documents or information on a website. The company must ensure that the information or documents can be clearly read on the website and printed off the website so that the members can retain a copy,
5. The company must notify its members of publication. Note that such notification will need to be made by post unless the recipient has agreed to receive e-mail or another form of electronic communication and has supplied the company with an appropriate address. The member must be notified of the presence of the document or information on the website, the website address, the place on the website where the document or information may be accessed, and how to access the document or information.

Electronic communication other than by means of a website - checklist

If a company wishes to communicate electronically with its shareholders other than via a website (for example, by email or fax), there are four general steps to follow.

1. The company must obtain the intended recipient’s agreement to communication in electronic form. The person’s consent cannot be obtained by electronic means - it must be by hard copy. Note that emails and fax will not be valid forms of communication between the company and a shareholder if that shareholder has not actually consented to such communication.
2. The company should ensure that any shareholders' agreement has not been revoked.
3. The company must send the documents or information to an address specified for that purpose by the shareholder in question.
4. The company can then send the documents or information to the shareholder.

Practical tips for electronic communication

Companies considering electronic communication with shareholders would be well-advised to adopt a 'belt and braces' approach. In other words, they should look to obtain consent for communication via a website and for communication in electronic form other than by means of a website. This would allow companies to publish information and documents on a website and notify their members of such publications via e-mail.

There are other practical tips of which companies keen to introduce electronic communication with shareholders should be aware. Notably, companies should keep hard copies of the document or information. This is important because a member will still be entitled to request a hard copy of the document or information. Companies should also prepare a contingency plan to deal with system failure. It would also be best practice to maintain an accurate record of those members who have agreed to the use of electronic communications and those who, in the last 12 months, have actively refused to agree.

Should you have any further questions about this, please do get in touch with your usual Brodies LLP contact.