Holding Annual Director and Shareholder Meetings During the COVID-19 Pandemic (updated August 14, 2020)
By law, under normal circumstances, Ontario and federally incorporated corporations and not-for-profits are required to hold a meeting of shareholders no later than 18 months after incorporation and every 15 months thereafter and no later than six months after the corporation’s most recent financial year-end. During annual meetings, shareholders typically review and discuss the corporation’s financial statements, decide whether to appoint an auditor, elect the corporation’s directors and make other business decisions. Due to the COVID-19 pandemic, some of the legal requirements surrounding meetings have temporarily changed.
How can I hold a director or shareholder meeting during COVID-19?
In light of Canada’s current state of physical distancing and self-isolation to prevent the spread of COVID-19, Ontario has issued an order under the Emergency Management and Civil Protection Act temporarily excusing Ontario Corporations from certain provisions of the Business Corporations Act (Ontario). Ontario corporations are now permitted to hold a virtual or hybrid shareholder meeting, regardless of whether the corporation is restricted from doing so under its by-laws or articles. Further, the deadline for conducting annual meetings has been extended as follows:
- If your corporation was originally to have held a shareholder meeting during the state of emergency (on or after March 17, 2020), you now have until the 90th day following the eventual termination of the state of emergency (which has not yet been announced) to hold that meeting; and
- Meetings that were originally to have been held sometime in the first 30 days following the termination of the state of emergency (which again, has not yet been announced), must now be held no later than 120 days after termination of the state of emergency.
Ontario corporations may also temporarily hold directors meetings by phone or other electronic means, despite anything to the contrary in the corporations’ articles or by-laws, as long as all participants in the meeting are able to communicate simultaneously and instantaneously.
To view the emergency order, visit this link.
Under the new order, the deadline for federally incorporated businesses (those incorporated under the Canada Business Corporations Act or the Canada Not-for-profit Corporations Act) to call annual general meetings has been extended to the shorter of the following two options:
- 21 months after the previous annual general meeting and no more than 12 months after the last financial year-end; or
- December 30, 2020.
Directors now have 12 months after the organization’s last financial year-end, rather than the usual six months, to present financial statements to shareholders or members.
Federal corporations must have express authority in its articles or by-laws to conduct a virtual or hybrid meeting or must apply for a court order permitting the meeting. If your corporation’s articles or by-laws permit virtual or hybrid meetings, you must ensure that the platform used to hold the meeting allows all participants to communicate adequately with one another.
For more information on how to remain compliant under the applicable Act during the COVID-19 pandemic, visit this link.
Ontario and Federal Corporations
Both Ontario and federally incorporated businesses must continue to abide by the requirements for notice and quorum. Directors must give notice to each shareholder, director and auditor between 21-50 days before a meeting for offering corporations and between 10-50 days before a meeting for all other corporations. A quorum must be present (or represented by proxy if permitted in the corporation’s constating documents). Unless a corporation’s by-laws or articles state otherwise, a quorum is present when the holders of a majority of shares entitled to vote are present or represented by proxy.
Corporations must also keep records of virtual (and all) meetings detailing where and when the meeting was held, who attended the meeting and what resulted from any voting.
Alternatives to a virtual/hybrid meeting
Alternatively, corporations with a small number of shareholders or members may choose to have a written resolution signed by all shareholders entitled to vote in lieu of a meeting. Annual resolutions must deal with the matters normally dealt with at annual meetings such as electing directors, reviewing/discussing the corporation’s financial statements and appointing or waiving the appointment of an auditor.
For federal corporations that are prevented by their articles or by-laws from holding virtual and/or hybrid meetings, other options may include:
- Holding a regularly scheduled in-person meeting with a simultaneous webcast, while strongly discouraging physical attendance and encouraging shareholders to vote in advance; or
- Adjourn or postpone the meeting, subject to restrictions in the articles or by-laws (if postponed for fewer than 30 days, it is not necessary, unless the articles or by-laws provide otherwise, to give notice of the adjourned meeting other than by announcement at the earliest meeting that is adjourned).
Where an issuer of a federal corporation has already called an in-person meeting and wishes to conduct a virtual or hybrid meeting instead, the company must comply with applicable securities law or seek relief from the courts. Where the deadline for giving notice to the shareholders cannot be met, the company may choose to postpone the meeting or apply to the court to reduce the minimum notice requirement. Discretionary relief may also be available from the courts where a postponement of a meeting may not allow a company to hold an annual meeting within 15 months of the previous meeting or within six months after the corporation’s fiscal year-end.
Advantages and disadvantages to virtual meetings
Virtual and hybrid meetings can allow for individuals who are not in close geographic proximity to participate in important business decisions and may reduce travel and venue costs. Holding a virtual or hybrid meeting also allows shareholders to submit questions in advance which may contribute to the efficiency of the meeting and provide the issuer with more control over the proceedings.
There are, however, some disadvantages to holding virtual and hybrid meetings:
- Virtual participation reduces face-to-face communication and direct confrontation;
- Pre-submitted questions may be filtered and/or ignored;
- Technical issues may cause disruptions;
- There may be costs associated with the use of electronic platforms; and
- Real-time voting may be unpredictable.
Virtual meetings are not recommended where there is a proxy contest or other matter being put before shareholders that may be contested. In these instances, given the special nature of the business, an in-person meeting is preferable, and the company may therefore choose to adjourn or postpone the meeting.
While Canada copes with the COVID-19 outbreak, companies will be required to balance their obligations to hold shareholder meetings with their social responsibility to conduct such meetings in a manner that protects the health and safety of their shareholders and members of the community. Companies should strive to be flexible (including through appropriate language in their proxy materials) in adapting their meeting plans to these rapidly evolving circumstances and changing market practices. We recommend that corporations contact their lawyers to discuss best practices for carrying out virtual or hybrid meetings or signing resolutions in order to fulfill their legal obligations in the face of COVID-19.