Mailing Annual Financial Statements to Shareholders of Canadian Reporting Issuers
As we approach the upcoming AGM and annual financial statement filing season, Canadian reporting issuers (sometimes referred to as public companies) should be mindful of their obligations regarding the mailing of annual financial statements (and related MD&A) to their shareholders as there is a subtle difference between the requirements in Canadian securities legislation and the requirements in applicable corporate law.
Under section 4.6 of NI 51-102 – Continuous Disclosure Obligations (“NI 51-102”), Canadian reporting issuers may either (i) send their annual financial statements to all of their registered and beneficial shareholders or (ii) annually send a request form to the registered and beneficial shareholders which such shareholders may then use to request to receive a copy of the reporting issuer's annual financial statements, or interim financial statements, or both. If a registered holder or beneficial shareholder requests to receive such statements, the reporting issuer must send a copy of those statements to the shareholder, without charge, by the later of 10 calendar days after the filing deadline for the requested statements and 10 calendar days after receiving the request. In order to satisfy a request for financial statements, the reporting issuer must also send the accompanying MD&A.
The sending of the request form is normally satisfied with the inclusion of statements to the following effect on the form of proxy or voting instruction form sent to shareholders in connection with an AGM:
- Check this box if you would like to receive the annual financial statements and accompanying MD&A of the company.
- Check this box if you would like to receive the interim financial statements and accompanying MD&A of the company.
As you can see, request form requires the shareholder to “opt in” in order to receive the reporting issuer’s financial statements.
However, the Alberta Business Corporations Act (“ABCA”) and the Canada Business Corporations Act (“CBCA”) have not yet been harmonized with NI 51-102. The ABCA and the CBCA (section 159 of each act) each have a requirement for the delivery of annual financial statements to each registered shareholder (whether or not voting) at least 21 days before the annual meeting of shareholders except to a registered shareholder who has informed the corporation in writing that he or she does not want a copy. Therefore reporting issuers incorporated under either the ABCA or the CBCA that would otherwise benefit from s. 4.6 of NI 51-102 will still have to send annual financial statements to their registered shareholders regardless of whether a request has been sent (unless the shareholder responds in writing that he or she does not want them). Under each of the ABCA and the CBCA, a corporation that contravenes this requirement is guilty of an offence and liable to a fine of not more than $5,000.
Note that interim financial statements are not dealt with in either the ABCA or the CBCA. Therefore, while reporting issuers subject to either the ABCA or the CBCA will have to send copies of their annual financial statements to their registered shareholders, they will be able to rely on s. 4.6 of NI 51-102 with respect to interim financial statements.
Therefore, in order to remain in technical compliance with applicable Canadian securities legislation and applicable Canadian corporate legislation, Canadian reporting issuers incorporated under either the ABCA or the CBCA should include an “opt out” provision for the receipt of annual financial statements (but maintain the “opt in” provision for the receipt of interim financial statements) on the financial statement request form sent to registered shareholders (i.e. “I do not wish to receive such statements”) and an “opt in” provision on the financial statement request form sent to beneficial shareholders (i.e. “I wish to receive such statements”).
“Opt Out” sample (registered holders):
- Check this box if you would NOT like to receive the annual financial statements and accompanying MD&A of the company.
- Check this box if you would like to receive the interim financial statements and accompanying MD&A of the company.
“Opt In” sample (beneficial holders):
- Check this box if you would like to receive the annual financial statements and accompanying MD&A of the company.
- Check this box if you would like to receive the interim financial statements and accompanying MD&A of the company.
If you would like to discuss the financial statements mailing requirements for Canadian public companies, or any other matter concerning Canadian securities legislation, please do not hesitate to contact one of the “Corporate Finance” lawyers in the “Business Law” group at SNC Law.
Disclaimer:
Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.