In the context of the COVID-19 pandemic, and while measures are being implemented by government authorities to limit gatherings and travel, corporations are seeking solutions to replace in-person annual shareholders' meetings. Holding your corporation's annual shareholders' meeting virtually, in whole or in part is (subject to the by-laws and corporate laws governing your corporation) an effective means to ensure shareholder participation while also protecting public health. Although this method has gained popularity among publicly traded companies, even becoming the norm in the current situation, this option is also available to private corporations. In any case, for corporations that prefer not to rely on electronic methods, or for those which are unable to do so, other alternatives are available.
Holding an Annual Shareholders' Meeting
For corporations with many shareholders and smaller corporations alike, annual meetings represent one of the few opportunities for shareholders to be involved in the management of the corporation. In both cases, holding an annual shareholders' meeting is mandatory for the purposes of receiving and reviewing financial statements, electing directors, appointing auditor(s) and authorizing directors to fix their remuneration, as well as discussing any other important issue or item that may require shareholder approval.
It is important to note that rather than voting at the meeting, shareholders of corporations governed by either the Canada Business Corporations Act (the "CBCA") and the Quebec Business Corporations Act (the "QBCA") may elect to vote in advance by proxy, by giving voting instructions to a proxyholder who will represent the shareholder at the meeting.[1] For federally incorporated corporations with more than 50 shareholders, management must send a proxy form as well as a management proxy circular along with the notice of meeting.[2] Moreover, the management of any federal corporation, including a corporation with less than 50 shareholders, that wishes to solicit proxies so that shareholders may vote prior to the meeting must prepare and send a management proxy circular in the prescribed form.[3]
What is the Applicable Timeline?
Corporations governed by the CBCA must call an annual meeting by sending a notice of meeting within 15 months after the last preceding annual meeting, but not later than 6 months after the financial year-end.[4] The meeting itself must be held within 21 to 60 days from the sending the notice of meeting (though by-laws can provide for a shorter maximum time limit), which must be sent to each shareholder entitled to vote as well as to each director and the auditor(s).[5] The financial statements must also be submitted to the shareholders at least 21 days before the annual meeting.[6]
For corporations governed by the QBCA, the annual meeting must be held (and not "called" as required under the CBCA) within 15 months after the last preceding annual meeting, but not later than 6 months after the fiscal year-end, given that the board of directors must present financial statements issued not more than 6 months prior to the meeting date.[7] Unless otherwise provided for in the by-laws, the notice of meeting of a corporation that is not a reporting issuer must be sent at least 10 days before the meeting to each shareholder entitled to vote at the meeting as well as to each director.[8]
The notice of meeting, as well as the financial statements, may be sent by any means, including email, as long as the shareholders have consented to such communication method.[9] For federal corporations, the notice of meeting may be sent via electronic means as long as certain regulatory requirements are complied with, including that the documents be sent concurrently to all shareholders[10] and that they be accessible so as to be usable for subsequent reference.[11]
What are the Consequences of Not Holding a Meeting Within the Applicable Timeline?
Directors of a federal corporation that do not comply with the time limits for calling or holding an annual meeting may be subject to legal sanctions.[12] In fact, they may be liable to a fine of up to $2,000 and/or 6 months of prison.[13] In addition, any CBCA or QBCA corporation that fails to hold its annual meeting for two consecutive years may be dissolved at the request of any interested person.[14] Moreover, any notice of meeting that is sent after the time limit, whether under the CBCA or QBCA, may invalidate the meeting and allow a shareholder to obtain an order to prevent the meeting from being held, unless that shareholder attends the meeting without objection.[15]
In practice, however, one might ask what the true consequences are of holding a meeting outside the applicable time limits when all shareholders have given their consent. In such a case, it is unlikely that the validity of the meeting could be contested by any shareholders or third parties.[16]
What Alternatives are Available?
Written Resolution Signed by All Shareholders
A written resolution in lieu of an annual meeting is already common practice for most corporations with a small number of shareholders. Once signed by all shareholders entitled to vote, the resolution is as valid as if it has been passed at an annual meeting, thus allowing the corporation to avoid having to actually hold an in-person meeting.[17] Electronic signature platforms, such as Docusign, enable shareholders to easily sign such resolutions remotely.
Virtual Meeting
Virtual-only meeting
Virtual meetings held solely by electronic means are an interesting option for corporations of all sizes. Under both the CBCA and QBCA, annual meetings may be held solely by electronic means, provided that the corporation's by-laws so allow.[18] These laws also require that the means of communication allows all participants to communicate adequately with each other and, under the QBCA, "directly" with each other.[19]
It should be noted that for corporations governed by the QBCA, further to the public health state of emergency declared on March 13, 2020, the Minister of Health and Social Services adopted order no. 2020-029[20] (the "Order") on April 26, 2020, which temporarily allows in-person meetings, sessions or assemblies to be held by any means that enables all participants to communicate directly with one another. As confirmed by the Minister of Justice and Attorney General of Quebec in a press release issued on April 27, 2020[21], the Order applies to meetings held by corporations governed by the QBCA whose by-laws prohibit a meeting to be held using electronic means. The measures under the Order will, however, be in force only for a limited period of time, namely until the state of emergency ends, after which the provisions of the QBCA will once again become enforceable. As for federally incorporated corporations, Corporations Canada has adopted a different approach by confirming on March 26, 2020 that the current wording of the CBCA cited above would remain in effect despite the COVID-19 pandemic.
For corporations with a small number of shareholders, it is possible to use the video conferencing platform of your choice, such as Skype, Cisco Webex, etc. Unless otherwise provided for in the corporation's by-laws, voting during a meeting is generally determined by show of hands.[22] As such, a video conferencing method enabling shareholders to cast their vote by show of hands would comply with applicable legal requirements and allow quorum to be determined.[23] In practice, conference calls via dial-in telephone numbers that allow shareholders to cast their vote orally (rather than by show of hands) would also meet these requirements. Exceptionally, shareholders may request a ballot vote at the meeting,[24] in which case an anonymous online poll overseen by the designated scrutineers, or any other procedure provided in the by-laws, would also be compliant.[25] If you decide to use one of these freely accessible platforms, it is important that you verify beforehand that such platform is sufficiently secure, in order to protect the confidentiality of the information of the meeting.
For larger businesses, it is recommended to use a specialized service provider offering a platform that enables online participation and voting. These electronic voting systems allow shareholders to vote using their smartphone or laptop computer, rather than by show of hands. These types of platforms also reduce the margin of error of voting results and facilitate shareholder participation. However, it should be noted that these specialized voting technologies are much more expensive.
Regardless of which technology you use, it is important to note that if contentious or controversial matters are to be addressed at the meeting, an exclusively virtual meeting may impede effective communication between shareholders. The presence of an external secretary taking detailed minutes of the meeting would be advisable in such a case.
Hybrid meeting
Subject to the emergency public health measures currently prohibiting gatherings[26], a hybrid meeting is an interesting compromise between an in-person meeting and a completely virtual meeting. On the one hand, the meeting is still physically accessible, allowing those who want to attend in person to do so. On the other hand, shareholders who prefer to avoid an in-person meeting can attend remotely by using the same methods for virtual meetings described above.
In-person meeting with webcast
Again subject to the applicable public health measures[27], an in-person meeting with a live webcast represents the third and final option for holding your meeting electronically. Unfortunately, this format only allows shareholders to listen or watch the meeting. It does not allow them to vote remotely or to communicate with each other during the meeting. For these reasons, this practice does not meet the legal requirements for quorum.[28] Management can encourage shareholders to vote prior to the meeting by soliciting proxies, which for federal corporations will, as noted above, trigger the necessity of preparing a management proxy circular.[29]
Adjournment of the Meeting
Where a notice of meeting has been sent to shareholders, the meeting may be adjourned by resolution of the board of directors on the condition that it ultimately be held within the time limits set by the corporation's by-laws and applicable laws governing the corporation.
If it is advisable to delay the holding of your meeting beyond the time limit provided in your by-laws or governing law, it is possible to apply to the court to obtain instructions regarding the calling and holding of such meeting.[30] In its notice dated March 26, 2020, Corporations Canada confirmed that to delay an annual general meeting beyond the applicable timeframe, federally incorporated businesses must obtain court approval.[31] In the current context, we expect the process to be standardized in order to respond to all such requests. By complying with the court order, it will not be possible for shareholders to subsequently challenge the validity of the meeting. While such orders would likely be granted in the current circumstances, recent announcements regarding court closures may impact a corporation's ability to obtain such an order in a timely manner.
Who to Contact to Ensure a Successful Hybrid or Virtual Meeting?
Legal Advisors
Your legal advisors can guide your through the above-mentioned legal requirements, helping you to align your corporation's needs with its by-laws and applicable laws. Prior to the meeting, if applicable, they can help you with organizing the meeting, coordinating with any retained service provider, preparing the notice of meeting (and circular), drafting a written resolution in lieu of the meeting, and preparing a court order. On the day of the meeting, they can act as secretary to ensure the proper conduct of the meeting and prepare the minutes of the meeting.
Technical Assistance
For small corporations that opt for a virtual meeting, basic technical assistance is recommended, not only with regards to preparing for the meeting, but also for providing any necessary assistance during the meeting. Your corporation's IT department may be sufficient for a meeting using a standard video conferencing platform.
For corporations that choose to use a specialized platform, service providers will supply the necessary technological tools to organize a hybrid or virtual meeting and will facilitate the proper conduct of the meeting. These firms ensure the security of the voting process, namely with regards to confirming shareholders' and proxyholders' identities and protecting personal data used and stored during the meeting. Since these service providers offer technical support services to management and shareholders during the meeting, potential IT issues are considerably reduced. The number of these service providers in Canada is limited. As such, it is best to contact these firms as soon as possible to ensure availability.
How to Notify Shareholders of a Change of Plans?
The corporation must inform its shareholders of any change to the format or date of the meeting as soon as possible after the decision is taken. The notice of meeting will have to be sent to the same persons who received the initial notice of meeting within the above-mentioned time limits.[32] In addition to the usual information, this notice must include the reasons for the change in format, such as government guidelines in connection with the COVID-19 pandemic. For a hybrid or virtual meeting, the notice must also include information regarding the registration process as a virtual attendee, which generally includes a link to the webcast and a username and password to access the platform.
Conclusion
Many options are available for holding your annual meeting while also helping to stop the spread of the COVID-19 pandemic. Professionals at Fasken can help you choose the right option based on your needs.
Disclaimer: This bulletin is for general information purposes and is subject to the particular facts of each case; certain requirements may have been simplified and the law may have changed since the date of this bulletin. This bulletin does not apply to cooperatives, non-profit organizations or other corporate entities governed by corporate laws other than the QBCA and CBCA.
The authors would like to thank Tristan Lalumière Roberge, Sylvie
Bourdeau, Jean Michel Lapierre and Alexandra Lazar for their contribution to this bulletin.
[1] Canada Business Corporations Act, RSC (1985), c C-44, sec 148(1); Business Corporations Act, CQLR c S-31.1, sec 170.
[2] Id., sec 149.
[3] Id., sec 150.
[4] Canada Business Corporations Act, RSC (1985), c C-44, sec 133(1)b).
[5] Canada Business Corporations Regulations, 2001, SOR/2001-512, sec 44; Canada Business Corporations Act, RSC (1985), c C-44, sec 135 (1).
[6] Canada Business Corporations Act, RSC (1985), c C-44, sec 159(1).
[7] Business Corporations Act, CQLR c S-31.1, sec 163, para 1 and 225, para 1.
[8] Id., sec 165, para 1.
[9] Canada Business Corporations Act, RSC (1985), c C-44, sec 252.3 and 252.4; Act to establish a legal framework for information technology, CQLR c C-1.1, sec 2, 3, 5 and 31, para 2; Canada Business Corporations Regulations, 2001, SOR/2001-512, sec 7(1);
[10] Canada Business Corporations Regulations, 2001, SOR/2001-512, sec 9.
[11] Canada Business Corporations Act, RSC (1985), c C-44, sec 252.5 (1) and (2).
[12] Id., sec 251.
[13] Marie-Andrée LATREILLE, "La responsabilité des avocats administrateurs", (2004) 206 Développements récents en déontologie, droit professionnel et disciplinaire 2004; Code criminel, L.R.C. (1985), ch. C-46, art. 787(1).
[14] Canada Business Corporations Act, RSC (1985), c C-44, sec 213(1)a); Business Corporations Act, CQLR c S-31.1, sec 462(1).
[15] Canada Business Corporations Act, RSC (1985), c C-44, sec 136; Business Corporations Act, CQLR c S-31.1, sec 168. Paul MARTEL, La société par actions au Québec, vol. n° 1, Montréal, Wilson & Lafleur, Martel Ltée, 2020, par. 28-137 and 28-138. Financial Network Guaranty Ltd. v. Terra Nova Energy Inc., [1987] BCJ No. 2646 (BCSC).
[16] Paul MARTEL, La société par actions au Québec, vol. n° 1, Montréal, Wilson & Lafleur, Martel Ltée, 2020, par. 28-29.
[17] Canada Business Corporations Act, RSC (1985), c C-44, sec 142(1); Business Corporations Act, CQLR c S-31.1, sec 178.
[18] Canada Business Corporations Act, RSC (1985), c C-44, sec 132(5); Business Corporations Act, CQLR c S-31.1, sec 175.
[19] Id.
[20] https://cdn-contenu.quebec.ca/cdn-contenu/adm/min/sante-services-sociaux/publications-adm/lois-reglements/AM_numero_2020-029.pdf?1588008772
[21] https://www.justice.gouv.qc.ca/en/press-releases/covid-19-pandemic-new-temporary-measure-to-allow-for-remote-meetings-and-sessions
[22] Canada Business Corporations Act, RSC (1985), c C-44, sec 141(1); Business Corporations Act, CQLR c S-31.1, sec 183, para 1
[23] Canada Business Corporations Act, RSC (1985), c C-44, sec 132(4); Business Corporations Act, CQLR c S-31.1, sec 174
[24] Canada Business Corporations Act, RSC (1985), c C-44, sec 141(1); Business Corporations Act, CQLR c S-31.1, sec 183, para 2.
[25] Paul MARTEL, La société par actions au Québec, vol. n° 1, Montréal, Wilson & Lafleur, Martel Ltée, 2020, par. 29-100.
[26] As of March 23, 2020 and given the emergency measures taken by the provincial government prohibiting gatherings and ordering the closure of non-essential businesses and services, the option of holding meetings involving in-person attendance, including hybrid meetings is not recommended. In the alternative, in the notice of meeting it is possible to discourage in-person attendance of shareholders while nevertheless holding a hybrid meeting.
[27] Ibid.
[28] Canada Business Corporations Act, RSC (1985), c C-44, sec 132(5); Business Corporations Act, CQLR c S-31.1, sec 175.
[29] Canada Business Corporations Act, RSC (1985), c C-44, sec 150.
[30] Canada Business Corporations Act, RSC (1985), c C-44, sec 133(3); Business Corporations Act, CQLR c S-31.1, sec 193.
[31] http://corporationscanada.ic.gc.ca/eic/site/cd-dgc.nsf/eng/cs08611.html
[32] Canada Business Corporations Act, RSC (1985), c C-44, sec 135(1); Business Corporations Act, CQLR c S-31.1, sec 165, para 1.
