Remote Participation and Virtual Meetings of Members: The New Corporate Best Practice

Practical Law Canada Legal Update w-024-5626 (Approx. 7 pages)

Remote Participation and Virtual Meetings of Members: The New Corporate Best Practice

by Practical Law Canada Corporate & Securities

Background

Meetings of charities and other not-for-profit (NFP) corporations have historically been conducted in Canada as physical meetings at which members may participate by attending the meeting in person or, sometimes, by proxy.

In recent years, some NFP corporations have used webcasting and other technology to permit members to view the proceedings remotely and participate electronically as a means to enhance the traditional meeting of members and increase member engagement. This is called a hybrid meeting in that it combines a physical meeting with remote participation.

It is also possible in several Canadian jurisdictions to hold a virtual meeting of members that is different from a physical meeting (or a meeting that is physically convened and webcast). In a virtual meeting, a physical meeting is not convened and the meeting is held entirely by electronic means without any in-person participation.

To date, the use of virtual meetings has been relatively rare in Canada due to the specialized technology and related cost required to conduct such meetings.

The outbreak of 2019 novel coronavirus disease (COVID-19) and the current best public health practice to avoid unnecessary meetings has led many Canadian NFP organizations to consider using available technology to:

Limit in-person attendance at their physical meetings of members by making available and encouraging the use of remote participation.
Replace their physical meeting of members with virtual meetings.

This Legal Update explains the ground rules for remote participation and virtual meetings under the Canada Not-for-profit Corporations Act, S.C. 2009, c. 23 (CNCA) and the Ontario Corporations Act, R.S.O. 1990, c. C.38 (OCA) as amended, effective on March 17, 2020 by O. Reg. 107/20 issued under the Emergency Management and Civil Protection Act, R.S.O. 1990, c. E-9.

O. Reg. 107/20 suspends the deadline for holding an annual meeting of members of a corporation without share capital incorporated under Part III of the OCA until:

120 days after the declared emergency in respect of COVID-19 has been terminated if the deadline for holding the meeting would otherwise have fallen with within 30 days after that termination date.
90 days after the declared emergency has been terminated in all other cases.

O. Reg. 1077/20 also overrides any provision of the letters patent, supplemental letters patent or by-laws of an OCA corporation so that:

The corporation has the option to hold a meeting of members by telephonic or electronic means.
A member who, through those means, votes at the meeting or establishes a communications link to the meeting is deemed to be present at the meeting.
A meeting of the board of directors (or a committee of directors) of the corporation may be held by such telephone, electronic or other communications facility as permits all persons participating in the meeting to communicate with each other simultaneously and instantaneously.
A director participating in the meeting by such means is deemed to be present at the meeting.

Timing Rules for Annual Meetings

As a starting point, NFP corporations must hold an annual meeting of members (often called an an annual general meeting or AGM) each year. A special meeting (often called a special geneal meeting or SGM) is optional and depends on the reason for calling it.

CNCA

An AGM must be held within specified time frames. Excluding a corporation that is holding its first AGM, the AGM of a corporation under the CNCA must be:

Called within 15 months after holding the last preceding AGM but no later than 6 months after the end of the corporation's preceding financial year.
Held within 6 months from the end of last completed financial year.
(Sections 160(1)(b) and 172(1)(a)(i), CNCA and section 61(2), Canada Not-for-profit Corporations Regulations, SOR/2011-223 (CNCR).)

A corporation must obtain an extension order from the Director appointed under the CNCA if it cannot call the meeting within the earlier of 15 months after the last preceding AGM or 6 months after the end of the corporation's preceding financial year (section 160(2), CNCA).

OCA

As a result of O. Reg. 107/20, the deadline for holding an AGM of an OCA corporation is suspended until:

120 days after the declared emergency has been terminated if the deadline for holding the meeting would otherwise have fallen with within 30 days after that termination date.
90 days after the declared emergency has been terminated in all other cases.

Suppose, for example, that an OCA corporation has a financial year ending January 31 and that the COVID-19 declared emergency is lifted on July 15, 2020. In the absence of O. Reg. 107/20, the corporation would have been required to hold its AGM on July 31, 2020 or sooner. However, as a result of O. Reg. 107/20, the corporation would have until November 13, 2020 to hold its 2020 AGM.

The OCA does not require an extension order to call or hold an AGM outside the time required under O. Reg. 107/20.

Remote Participation vs. Virtual Meetings

CNCA

The CNCA makes a distinction between:

Member participation in a meeting held through a telephonic, electronic or other communication facility.
Virtual meetings (where the meeting of members is held entirely by means of a telephonic, electronic or other communication facility).

OCA

The OCA does not make the same distinction as the CNCA.

Moreover, a result of O. Reg. 107/20:

An OCA corporation has the option to hold a meeting of members by telephonic or electronic means.
A member who, through those means, votes at the meeting or establishes a communications link to the meeting is deemed to be present at the meeting.
A meeting of the board of directors (or a committee of directors) of the corporation may be held by such telephone, electronic or other communications facility as permits all persons participating in the meeting to communicate with each other simultaneously and instantaneously.
Any director participating in the meeting by such means is deemed to be present at the meeting.

These temporary provisions override any contrary stipulations in the corporation's letters patent, supplementary letters patent or by-laws.

Remote Participation in Meetings

Where members participate remotely in a physical meeting through a communication facility, there is a meeting at a physical location at which the chair of the meeting and other representatives of the corporation are in attendance. The members have the choice between attending in person or participating remotely through a communications link. This denotes a hybrid meeting.

A person participating remotely in the meeting is deemed to be present at the meeting (section 159(4), CNCA) and section 125.1(1), (OCA)) and, accordingly, counts toward the quorum requirement for the meeting.

CNCA

Members of an CNCA corporation have the statutory right to participate in a meeting by a communications facility unless the corporation opts out or restricts the member’s right to participate remotely, either generally or in specific circumstances. However, even if there is no opting out, the directors of a CNCA corporation may still decide, with respect to each meeting of members, whether to make such a communication facility available (section 159(4), CNCA).

If the communication facility is made available, it must permit all participants to communicate adequately with each other during the meeting (section 159(4), CNCA). The communication facility could be by way of conference call, video-conference, Webex®, Zoom® or other means. For larger meetings, a service provider is required (the leading ones being Broadridge, GetQuorum and TSX Trust). However, email exchanges would not meet the adequacy standard under the CNCA. The provision that would qualify email exchanges as a meeting held by telephonic or electronic means under section 1(1) of the OCA has not yet been proclaimed in force.

A CNCA corporation wanting to opt out or restrict the right of members to participate remotely must prohibit or restrict remote participation in the by-laws or the articles (section 159(4), CNCA).

If the by-laws of a CNCA corporation contain rules opting out or restricting remote participation or, conversely, lack appropriate restrictions, the board can make, amend or repeal any by-law provisions it considers advisable with immediate effect (section 152(1) and (3), CNCA). The members must, by the approval of a simple majority of the votes cast (called an ordinary resolution under the CNCA), confirm the new by-law or by-law amendment or repeal at the next meeting of members, failing which, the new by-law or amendment or repeal has no further effect after that meeting and may not be re-enacted by the board without the prior approval of members by simple majority of the votes cast (section 152(2) and (4), CNCA).

If provided for in the articles of a CNCA corporation, the provision can only be amended by special resolution of the members (requiring approval by at least two-thirds of the votes cast) and the filing of articles of amendment with the Director under the CNCA. An amendment to the by-laws to add or modify provisions for virtual meetings (or electronic participation) does not require a special resolution of members under the CNCA before it becomes effective.

By-laws of a CNCA corporation should generally prohibit remote participation in the case of requisitioned meetings of members in which requisitionists call and conduct the meeting. Requisitionists would not have access to the corporation’s communication facility or financial resources to pay for a communication facility.

OCA

As a result of O. Reg. 107/20, an OCA corporation does not have the ability to restrict remote participation even at requisitioned meetings of members until at least 90 days after the declared emergency has been lifted.

Virtual Meetings of Members

In a virtual meeting, the meeting is held entirely by a telephonic, an electronic or other communication facility. Members cannot otherwise attend the meeting held at a specific physical location. The chair could be conducting the meeting from his or her office, home, cottage or overseas location. The only option for members (and any directors or others participating at the meeting) is to participate by way of the corporation’s chosen communication facility, which, again, could be by conference call, video-conference, Webex®, Zoom® or other means.

As in the case of remote participation by members at the meeting, the corporation’s chosen communication facility for the virtual meeting must permit all participants to communicate adequately with each other during the meeting (section 159(5), CNCA).

In contrast to remote participation by members, a CNCA corporation can only hold a virtual meeting of members if the by-laws (or, less commonly, the articles) specifically provide for it (section 159(5), CNCA). Stated otherwise, the default rule is that a corporation cannot have a virtual meeting in place of a physical meeting. If there is no provision for a virtual meeting in the by-laws, the board can add it with immediate effect and seek confirmation of the by-law amendment at the next meeting (or virtual meeting) of members (section 152(1) and (3), CNCA).

While the CNCA does not set out an explicit rule stating that a member participating in a virtual meeting counts toward meeting the quorum requirement, it would defeat the purpose of allowing virtual meetings if those participating in the meeting do not count toward quorum. This result is implicit in the CNCA.

If a CNCA corporation wishes to opt into holding virtual meetings, it can add the following provision to its by-laws:

"If the Directors [or members of the Corporation] call a meeting of members under the Act, those Directors [or members, as the case may be,] may determine that the meeting shall be held, in accordance with the Act, entirely by means of a telephonic, an electronic or other communication facility that permits all participants to communicate adequately with each other during the meeting."

This provision allows the board to hold a virtual meeting of meetings but, if the optional language in square brackets is omitted, does not allow members who requisition a meeting to do so.

Electronic Voting

Unless the by-laws or articles of a CNCA corporation otherwise provide, any member (entitled to vote) participating at a meeting of members (whether a physical meeting with remote member participation or a virtual meeting) may vote by means of the telephonic, electronic or other communication facility that the corporation has made available for that purpose. If made available by the corporation, the facility must both:

Enable the vote to be gathered in a manner that permits its subsequent verification.
Permit the tallied vote to be presented to the corporation without it being possible for the corporation to identify how the person voted.
(Section 165(4), CNCA and section 71(2), CNCR.)

The same standard applies where the vote is held entirely by means of a telephonic, an electronic or other communication facility that the corporation has made available for that purpose (section 165(4), CNCA and section 71(2), CNCR). In effect, the electronic voting provided by the corporation to members must create the functional equivalent of a secret ballot.

If the corporation does not provide a compliant form of communication facility (for example, because the meeting consists of an open conference call), any ballots will have to be provided by other means (including manual completion).

A conference call combined with electronic voting by computer may be compliant if the corporation does not directly gather the tallied votes. Rather, a third-party contractor (including the corporation’s auditor or lawyer) could gather the tallied votes without identifying to the corporation how each member voted.

If the corporation wishes to provide for electronic balloting, the system must provide the functional equivalent of a secret ballot. In that case, the following provision may be added to the by-laws:

"A member entitled to vote at a meeting of members may vote by means of a telephonic, electronic or other communication facility if the Corporation has a system that:

enables the votes to be gathered in a manner that permits their subsequent verification; and

permits the tallied votes to be presented to the Corporation without it being possible for the Corporation to identify how each member voted."

Remote Participation and Virtual Meetings of Members: The New Corporate Best Practice | Practical Law