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

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

The outbreak of 2019 novel coronavirus disease (COVID-19) has enveloped the world. Canada has not been spared. To flatten the curve of the outbreak within the Canadian population, gatherings of people have been limited to small numbers (at first 50 and, in some places, 10). Now, meetings between people outside the same household are discouraged or prohibited. The current best public health practice is to avoid unnecessary meetings of organizations. In response, many Canadian companies have turned to the use of available technology to either limit in-person attendance at their physical shareholder meeting or replace their physical meetings with virtual shareholder meetings. Also, on March 31, 2020, the Ontario government issued O. Reg. 107/20, under the Emergency Management and Civil Protection Act, R.S.O. 1990, c. E-9, to suspend the deadlines for holding annual meetings of Ontario corporations and to ensure that all Ontario corporations have the power to hold meetings of directors and shareholders despite any contrary provisions in the constating documents of the corporation. This Legal Update explains the ground rules for remote participation and virtual shareholder meetings under the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (CBCA) and the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (OBCA).

Remote Participation and Virtual Shareholder Meetings: The New Best Corporate Practice

Practical Law Canada Legal Update w-024-5104 (Approx. 9 pages)

Remote Participation and Virtual Shareholder Meetings: The New Best Corporate Practice

by Practical Law Canada Corporate & Securities
Published on 09 Apr 2020 • Canada (Common Law), Quebec
The outbreak of 2019 novel coronavirus disease (COVID-19) has enveloped the world. Canada has not been spared. To flatten the curve of the outbreak within the Canadian population, gatherings of people have been limited to small numbers (at first 50 and, in some places, 10). Now, meetings between people outside the same household are discouraged or prohibited. The current best public health practice is to avoid unnecessary meetings of organizations. In response, many Canadian companies have turned to the use of available technology to either limit in-person attendance at their physical shareholder meeting or replace their physical meetings with virtual shareholder meetings. Also, on March 31, 2020, the Ontario government issued O. Reg. 107/20, under the Emergency Management and Civil Protection Act, R.S.O. 1990, c. E-9, to suspend the deadlines for holding annual meetings of Ontario corporations and to ensure that all Ontario corporations have the power to hold meetings of directors and shareholders despite any contrary provisions in the constating documents of the corporation. This Legal Update explains the ground rules for remote participation and virtual shareholder meetings under the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (CBCA) and the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (OBCA).
This legal update has been expanded upon and will be maintained going forward as Practice Notes, Virtual and Hybrid Meetings of Shareholders: CBCA and Virtual and Hybrid Meetings of Shareholders: OBCA.

Background

Shareholder meetings of business corporations have historically been conducted in Canada as physical meetings at which shareholders may participate by attending the meeting in person or by appointing a proxy.
In recent years, many business corporations (particularly reporting issuers) have used webcasting and other technology to permit shareholders to view the proceedings remotely and participate electronically to enhance the traditional shareholder meeting and increase shareholder access. These are called hybrid meeting because they combine a physical meeting with remote participation.
It is also possible in several Canadian jurisdictions to hold a virtual shareholder meeting 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 are causing many Canadian corporations to consider using available technology to:
  • Limit in-person attendance at their physical shareholder meetings by making available and encouraging the use of remote participation.
  • Replace their physical shareholder meetings with virtual meetings.
This Legal Update explains the ground rules for remote participation and virtual meetings under the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (CBCA) and the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (OBCA). It takes into account the effect of O. Reg. 107/20 under the Emergency Management and Civil Protection Act, R.S.O. 1990, c. E-9, which the Ontario government issued on March 30, 2020 retroactive to March 17, 2020 (when the COVID-19 outbreak was declared an emergency in Ontario).

Timing Rules for Annual Meetings

As a starting point, business corporations must hold an annual meeting of shareholders each year. A special meeting is optional and depends on the reason for calling it.
An annual meeting must be held within specified time frames.

CBCA

Excluding a corporation that is holding its first annual meeting, the annual meeting of a corporation under the CBCA must be:
  • Called within 15 months after holding the last preceding annual meeting 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 133(1)(b) and 155(1)(a)(i), CBCA.)
Under the CBCA, a corporation must obtain an extension order from the court if it cannot call the meeting within the earlier of 15 months after the last preceding annual meeting or 6 months after the end of the corporation's preceding financial year (section 133(3), CBCA).

OBCA

Effective March 17, 2020, O. Reg. 107/20 enhanced the flexibility of Ontario corporations by suspending the deadlines for holding an annual meeting of shareholders under the OBCA until:
  • 120 days after the COVID-19 declared emergency has been terminated if the deadline for holding the meeting would otherwise have fallen within 30 days after that termination date.
  • 90 days after the declared emergency has been terminated in all other cases
O. Reg. 107/20 did not explicitly extend the requirement in s. 154(1) of the OBCA to hold the annual meeting within six months of the corporation's financial year end; however, this is implicit.
The OBCA does not require an extension order to call or hold an annual meeting outside the time required under O. Reg. 107/20. Shareholders can enforce the requirement by requisitioning a meeting or, in some cases, applying for a court-ordered meeting.

Remote Participation vs. Virtual Meetings

CBCA

The CBCA makes a distinction between:
  • Shareholder participation in a meeting held through a telephonic, electronic or other communication facility.
  • Virtual meetings (where the meeting of shareholders is held entirely by means of a telephonic, electronic or other communication facility).

OBCA

The OBCA does not make this distinction.
O. Reg. 107/20 overrides any provision of the articles or by-laws of an OBCA corporation so that:
  • The Corporation has the option to hold a meeting of shareholders by telephonic or electronic means.
  • A shareholder 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) 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.

Remote Participation in Meetings

Where shareholders 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 will be in attendance. The shareholder will have the choice between attending in person or participating remotely through a communications link. This is a hybrid meeting. A person participating remotely in the meeting is deemed to be present at the meeting (section 132(4), CBCA and section 94(2), OBCA) and, accordingly, will count toward the quorum requirement for the meeting.

CBCA

Shareholders have the statutory right to participate in a meeting by a communications facility unless the corporation opts out or restricts the shareholder’s right to participate remotely either generally or in specific circumstances (section 132(4), CBCA). However, even if there is no opting out, the directors of a CBCA corporation may still decide, with respect to each meeting of shareholders, whether to make such a communication facility available (section 132(4), CBCA).
If the communication facility is made available, it must permit all participants to communicate adequately with each other during the meeting (section 132(4), CBCA). 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 CBCA (although it would qualify as a meeting held by telephonic or electronic means under section 1(1) of the OBCA).
A CBCA corporation wanting to opt out or restrict the right of shareholders to participate remotely must prohibit or restrict remote participation in the by-laws or, less commonly, the articles (section 132(4)).
If the by-laws of a CBCA corporation contain rules for opting out or restricting remote participation or, conversely, lack appropriate restrictions, the board can amend or repeal any provisions it considers unsuitable with immediate effect (section 103(1) and (3), CBCA). In that case, shareholders must, by ordinary resolution (requiring approval by a simple majority of the votes cast), confirm the amendment or repeal at the next meeting of shareholders, failing which, the amendment or repeal has no further effect after that meeting and may not be re-enacted by the board without prior shareholder approval (section 103(2) and (4)).
If provided for in the articles of a CBCA corporation, the provision can only be amended by special resolution of the shareholders (requiring approval by at least two-thirds of the votes cast) and the filing of articles of amendment with the Director under the CBCA.
For example, by-laws should generally prohibit remote participation in the case of requisitioned meetings of shareholders in which the requisitionists call and conduct the meeting. The requisitionists would not have access to the corporation’s communication facility or financial resources to pay for a communication facility. A CBCA corporation can tailor its by-law accordingly.

OBCA

Because of O. Reg. 107/20, an OBCA corporation cannot restrict the use of remote participation in the case of requisitioned meetings of shareholders even if the articles or by-laws are amended accordingly.

Virtual Meetings of Shareholders

In a virtual meeting, the meeting is held entirely by a telephonic, an electronic or other communication facility. Shareholders 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 shareholders (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 shareholders 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 132(5), CBCA).
In contrast to remote participation by shareholders, a CBCA corporation can only hold a virtual meeting of shareholders if the by-laws (or, less commonly, the articles) specifically provide for it (section 132(5), CBCA). 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 shareholders (section 103(1) and (3), CBCA).
While the CBCA does not set out an explicit rule stating that a shareholder 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 is implicit in the CBCA.
If a CBCA corporation wishes to provide for virtual meetings, it must opt-in with a provision such as the following:
"If the Board calls a meeting of shareholders under the Act, the Board 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 optional provision allows the board to hold a virtual meeting of shareholders but does not allow shareholders who requisition a meeting to do so.

OBCA

Because of O. Reg. 107/20, an OBCA does not require an express provision allowing for virtual meetings. The articles and by-laws of an OBCA corporation cannot restrict the use of virtual meetings.

Electronic Voting

Unless the by-laws or articles of a CBCA corporation otherwise provide, any shareholder (entitled to vote) participating at a meeting of shareholders (whether a physical meeting with remote shareholder 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 45(2), Canada Business Corporations Regulations, 2001, SOR/2001-512 (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 45(2), CNCR). In effect, the electronic voting provided by the corporation to shareholders 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 shareholder voted.