Spotlight On: Annual Meetings of Shareholders

Every corporate statute requires a corporation, whether private or public, to hold an annual meeting of shareholders, commonly referred to as an annual general meeting or an AGM. Any other meeting of shareholders is a “special meeting”. AGMs are governed by the same democratic principles that apply to parliamentary bodies, in order to promote fairness, reasonableness, and good faith towards all who are entitled to take part.

The rules and considerations governing AGMs arise from corporate and securities laws, a corporation’s articles, by-laws, and shareholder agreement, and if a company is public, stock exchange policies.

Here are some things to know about shareholder meetings generally, and AGMs in particular, and some considerations for planning your next one.

Key Highlights

• If your company is private, consider if you need a shareholder meeting in the first place, or if you may be able to get written resolutions signed by each shareholder instead.
• When planning a shareholder meeting, start early and consider using a checklist to track the progress of key documents and tasks. Public companies can typically obtain a timeline of key dates and periods from their transfer agent, and should consider whether they plan to use the “notice-and-access” process (discussed below) early on, as it can change certain time periods.
• Be familiar with your company’s constating documents, other applicable procedural authorities, and key updates about the company and its activities.
• Consider implementing advance notice by-laws, and be ready for activism.
• Be prepared with important documents and information at the meeting itself. Expect the unexpected.
• Wrap up the formal meeting before presenting any management presentation. Do not feel obligated to prepare a management presentation. If you do prepare one, review it critically for any sensitive or confidential information, and clearly state any assumptions that underlie projections or forecasts.

Written Resolutions in Lieu of a Meeting

Private companies have the option of circulating resolutions electing directors each year in writing for execution by each shareholder, instead of holding an AGM. However, some companies may nevertheless choose to hold a meeting, particularly where obtaining the signatures of each shareholder is impractical.

Planning a Meeting

Setting the Record Date and Meeting Date

One of the first steps in planning a meeting is for the directors to determine the date of the meeting and the “record date”.

Annual shareholder meetings must generally be held within six months of the corporation’s fiscal year-end. See “Financial Statements” below.

The record date is the date used to determine which shareholders are entitled to receive notice of, and to vote at, the meeting. If no record date is fixed, corporate law often provides that it is deemed to be the close of business on the day immediately preceding the day on which notice of the meeting is given to shareholders.

A minimum and maximum number of days between the record date and the meeting date may be provided for, either in corporate statutes or in a company’s by-laws. For example:

• For CBCA companies, the regulations provide that the record date must be between 21 to 60 days before the meeting date.
• OBCA companies must have a record date that is between 30 and 60 days prior to the meeting date.

Determine the Chair, Scrutineer, and Proxyholders

The board should determine who the chair, the scrutineer, and the proxyholder will be.

• The chair of a meeting is responsible for presiding over the meeting and leading its proceedings. To provide for the formal business of the meeting, the chair will typically read from a meeting script prepared by the corporation’s counsel.
• A scrutineer is not specifically required under corporate statutes, but many companies appoint a scrutineer for the purpose of collecting and tabulating votes submitted both by proxy and at the meeting.
• The board should also identify one or more executive officers who will be present at the meeting and who can be proposed to shareholders as proxyholders (shareholders can usually identify an alternative individual to represent them at the meeting, if desired).

Identify Your Shareholders

In connection with a record date being set, a corporation must prepare an alphabetical list of its registered shareholders as of the record date, showing the number of shares held by each shareholder.

Private companies may use this step in the process to confirm they also have mailing addresses at the ready for each shareholder (addresses are typically recorded in a register of shareholders).

Public companies will need to work with their transfer agent and the Canadian Depository for Securities (CDS) to confirm the securities intermediaries on record that hold shares on behalf of beneficial shareholders. Meeting materials are distributed to those beneficial owners via those intermediaries, and their votes are collected, in a specialized sequence of steps.

Identify Board Seats and Nominees

The number of directors on the board is initially set by special resolution of the shareholders. From there, corporate laws contemplate that the board may be empowered by the shareholders to increase or decrease its own size from time to time.

Management of the corporation, or a nomination committee of the board if one exists, typically identifies the nominees for election to the board.

Prepare Meeting Materials

Materials that must be prepared and provided to shareholders in connection with a meeting include:

• a notice of meeting,
• a form of proxy, if required under the corporate statute,
• the company’s financial statements for the preceding financial year, and
• in certain circumstances, an information circular.

The notice of meeting, form of proxy, and (if applicable) information circular must be sent to shareholders ahead of the meeting. Copies of the financial statements must be made available at the meeting (and for public companies, are subject to their own timely disclosure requirements).

Some corporate statutes also require that directors and the auditor be notified of shareholder meetings.

Notice-and-Access for Reporting Issuers

Reporting issuers (public companies) may use a “notice-and-access” process to notify shareholders of the meeting date and provide access to meeting-related materials via SEDAR+ and a non-SEDAR+ website (such as the issuer’s website), rather than mailing or emailing the meeting materials.

Use of the “notice and access” process is governed by relevant securities and corporate laws and will impact timing considerations otherwise discussed above. Issuers should consult with counsel to confirm that they may rely on the notice-and-access process and to confirm their obligations.

Notice of Meeting and Form of Proxy

Generally, a notice of meeting must include, among other things, the time, date and location of the meeting, and the matters to be addressed and voted on at the meeting. Notice should be sent to all persons entitled to vote at the meeting, the directors, and the auditor.

A proxy is like a power of attorney. Proxy forms allow a specified individual to vote the shares owned by a shareholder in a particular manner. Proxies help ensure that shares can be represented and voted at a meeting even when the shareholder cannot personally attend.

Proxy forms, and their solicitation, are regulated by corporate and securities laws and potentially also by a corporation’s constating documents. Public companies, for example, must consider the requirements of National Instrument 54-101 – Proxy Solicitation.

Information Circular

An information circular is required for meetings of shareholders of reporting issuers and some private companies. For example, the CBCA requires private companies with more than 50 shareholders to provide an information circular ahead of each annual meeting to each shareholder, the auditor, the directors, and the “Director” appointed under the statute (together with a copy of the notice of meeting). Reporting issuers will also need to file a copy of the circular, together with the other meeting materials, on SEDAR+ and with securities regulators such as the Ontario Securities Commission.

An information circular is a formal direct communication from a company to its shareholders that:

• provides information about the upcoming shareholders’ meeting,
• solicits proxies from each shareholder for the meeting, and
• provides certain information about the corporation, including executive compensation and corporate governance matters.

National Instrument 51-102F5 sets out the particulars of what this document must include.

Financial Statements

Corporate statutes require that financial statements for the preceding financial year be placed before the shareholders at each annual meeting. The CBCA and OBCA require the financial statements presented at a meeting to be for a period ended no more than six months prior to the meeting date. This effectively requires an annual meeting to be held no more than six months after the corporation’s fiscal year-end.

Copies of the financial statements are often included with the package of meeting materials sent to shareholders. Copies of the financial statements should also be printed and made available to shareholders at the meeting itself.

Logistics of the Meeting

If a meeting is being held in person or in a hybrid format, consideration should be given to logistical questions such as venue, parking, security, adequate seating and facilities for shareholders, securing any required audio-visual equipment, and how attendee questions will be addressed.

Heading Off Surprises

Shareholder meetings can bring surprises. It can be hard to know in advance which shareholders plan to attend, and how supportive they may be. Meetings are a primary opportunity for activist shareholders to air their grievances and gather support. Even friendly shareholders may ask questions that catch management off-guard.

Advance Notice By-Laws

Consider if your company’s articles or by-laws include (or should include) advance notice provisions, commonly known as advance notice by-laws. Advance notice by-laws require shareholders to give advance notice to a company if they intend to nominate a person for election to the board.

A provision like this can help eliminate a surprise nomination being made from the floor at the meeting (known as an “ambush”), and supports the company’s ability to provide shareholders with a complete list, in advance, of director nominees up for election.

Other Steps

The following steps may help a board prepare for the unexpected:

• Talk to your Investor Relations department and executives to find out about hot button issues with stakeholders. Are there any potential activists in the crowd?
• Take a candid look at your company. Which promises has it made, and have they been kept? How does it compare with its peers? Common breeding grounds for shareholder activism often include executive compensation and ESG-related concerns: how does your company stack up on these?
• Review your company’s shareholder agreement and by-laws for any requirements they impose on how shareholders may vote, what constitutes quorum, and other factors important to conducting the meeting. Consider implementing advance notice by-laws if they are not already in place.
• Pay close attention to proxies received (and those notreceived), and any deviation from patterns, especially from major shareholders. A shareholder who has always submitted supportive proxies but which does not send in a proxy this year may be planning to attend the meeting in person – for a reason.
• Treat shareholders with fairness and equality, and take thoughtful feedback seriously. Even a small shareholder can be a disruptive force.
• With an eye to proxy solicitation rules, encourage shareholders to submit proxies in advance. This can help shore up quorum, and can also provide advance information about voting trends.
• Keep an eye on references to your company on social media and other discussion platforms.
• Consider preparing a list of tough questions that could arise at the meeting, and outline key points for answering them.
• It may be helpful for the chair to practice reciting their script, including pieces reserved for dealing with interruptions and other contingencies. Identify the shareholders who will move and second motions in advance, and ensure they have a copy of the script. Have a form of ballot ready to print.
• Identify a “point person” who keeps copies of important documents and information ready for easy reference.
• Consider if the meeting should be recorded, especially if contention is expected. If so, the recording should be kept in a secure place and used only for the preparation of minutes.
• The chair is responsible for maintaining order in the meeting, but should also plan to run the meeting with a spirit of fairness, reasonableness, and good faith. If a situation becomes heated, the chair may wish to consider adjourning the meeting for a short while, such as 15 minutes, to help restore order and seek legal advice, if required.

At the Meeting

Confirming Quorum

Quorum is the number of votes which must be present, in person or by proxy, before business can be validly transacted at a meeting.

Both the CBCA and the OBCA provide that unless the company’s by-laws provide otherwise, quorum is a majority of the company’s voting shares present in person or by proxy.

The scrutineer typically confirms that quorum has been met before the business of the meeting gets underway.

Business of the Meeting

“General business” of a shareholder meeting includes the election of directors, re-appointment of the incumbent auditors (or appointment of new ones), and the consideration of the corporation’s financial statements and auditor’s report.

Of those matter, the election of directors is often the focal point. For private companies, votes electing directors can only be cast “for” or “withheld”. Under most corporate statutes, there is no ability to vote “against” a director.

However, amendments to the CBCA provide that for shareholder meetings of public companies where the number of director nominees is equal to the number of board positions to be filled, shareholders must have the option of voting either “for” or “against” directors. In order to be elected, such directors must receive more votes “for” than “against”. Major stock exchanges such as the TSX also have policies to similar effect, requiring a director to resign if more than 50% of votes are withheld from their re-election at an annual meeting.

Voting

Unless otherwise required by corporate laws or the company’s constating documents, all questions are decided by a majority of votes of those present, conducted by a show of hands.

Most resolutions require a simple majority of votes in order to pass, but some resolutions require two-thirds or more. A poll may be required for any resolution that requires more than a simple majority of votes to pass.

Q&A and Management Presentations

After the formal business of the meeting concludes, a company may invite questions from the attendee shareholders, or present details about how business is going. This can build goodwill with shareholders, and even energize a company’s stakeholder base ahead of a future financing. However, there is no corporate law requirement to provide this additional information.

If you do plan to provide further information about the business after the formal meeting proceedings:

• consider the company’s confidentiality obligations to third parties and under privacy laws;
• consider the risk that any information you share, even information you are authorized to share, could end up in the hands of competitors, regulators, and even the media; and
• for reporting issuers, consider any selective disclosure concerns and plan to provide access to any presentation materials via SEDAR+ and the company’s website coincident with the meeting.

After the Meeting

Minutes

Following the meeting, minutes will be prepared which summarize the business conducted at the meeting. Minutes can be prepared by the corporation’s management or counsel, and are often signed by an officer of the corporation once finalized.

Filings

Reporting issuers must typically issue and file on SEDAR+ a news release after an AGM, disclosing the director election results among other outcomes. They should also confirm that an account on SEDI (the System for Electronic Disclosure by Insiders) is created for any new directors.

Both public and privately held companies should ensure they file any necessary notices of change and update their corporate profiles to reflect any changes to the board.

Follow Up on Promises

Companies should keep track of resolutions that were approved at the meeting and other commitments made and messaging given to shareholders and plan to implement them.

Virtual Meetings

Many corporate statutes expressly allow a shareholder meeting to be held by electronic means if determined by the directors, unless constating documents of the corporation provide otherwise.

Virtual meetings are more common in the wake of the pandemic. They can simplify many logistical aspects of holding a meeting, and can make it easier for shareholders to attend. However, they have their own drawbacks. Virtual shareholder meeting platforms must be specifically tailored to allow for voting and other procedural aspects to be conducted in compliance with statutory requirements, and accordingly, they may be costly, especially for smaller companies.

From a shareholder’s perspective, a virtual meeting may offer fewer opportunities to ask questions or engage with management or other shareholders, and voting may not necessarily be a simple process.

Disclosure Guidance for Virtual Meetings

While securities regulators do not oversee the conduct of shareholder meetings, the Canadian Securities Administrators (CSA) have provided guidance on virtual meetings, on the principle that an objective of securities law disclosure requirements is to ensure that shareholders have the information they need to understand a reporting issuer’s affairs and exercise their rights as shareholders.

The CSA have emphasized most recently that issuers should provide for an ease, level and quality of shareholder participation at a virtual meeting that is comparable to that which a shareholder could reasonably expect if they were attending a meeting in person. The ability to attend and participate in a virtual shareholder meeting should not require anything more than a basic level of technological proficiency.

Among other things:

• issuers should ensure shareholders have opportunities to make motions or raise points of order, raise questions and provide direct feedback to management in any question-and-answer portion of the meeting;
• issuers should allow the proponents of any shareholder proposals a reasonable opportunity to speak to them and answer questions about them; and
• an issuer’s disclosure (including management information circulars and proxy-related materials) should provide clear and comprehensive information about how to access, participate, and vote at a virtual meeting.

The CSA also suggested that issuers consider holding hybrid meetings to allow for both in-person and virtual participation.

Parting Notes

An annual meeting represents an important chance for meaningful engagement between shareholders and a company’s management. With careful planning, an AGM can be an opportunity for a company to both confirm the support for its board of directors, and to establish and enrich its relationship with its stakeholders.

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