The election of a company's directors is an important component of corporate governance. Here are a few practical considerations.
When the company isincorporated, the articles of incorporation must specify either a fixed number ofdirectors or a minimum and maximum number ofdirectors. When the number is fixed, the shareholders must elect or attempt to elect this fixed number ofdirectors. In practice, the number ofdirectors is generally variable, with a minimum and a maximum number.
When the number ofdirectors is variable, federal and provincial corporate laws are not clear on how to set the number within the permitted limits. In the end, it is the company's by-laws that determine how to set the number within the limits. For example, this power may be left to the discretion of the Board of Directors. Otherwise, the shareholders determine the number ofdirectors within the permitted limits.
Generally, directors are elected at the annual meeting of shareholders. This is mandatory for federal corporations. In the case of Quebec companies, the law does not stipulate that election must take place at the annual meeting of shareholders, leaving the possibility of election at any other time.
directors are generally elected by ordinary resolution, i.e. 50% + 1 of shareholder votes. TheCanada Business Corporations Act provides that directors are elected by ordinary resolution.
The Quebec Business Corporations Act is silent on the threshold required to elect directors directors, so we must rely on the company's by-laws. This may be by a majority of votes (ordinary resolution), or by the greatest number of votes obtained by the candidates.
When a vacancy occurs on the Board of Directors, i.e. a director director ceases to hold office during his or her term, the Board ofdirector can generally appoint a replacement to complete the term of the outgoingdirector director. However, the Articles of Association may stipulate that only shareholders may fill vacancies on the Board of Directors.
In addition, shareholders may elect one or more additional directors between annual meetings in certain circumstances, notably when the number ofdirectors (fixed, minimum or maximum) provided for in the by-laws is modified, or when the number ofdirectors between the permitted limits is increased, in the manner provided for in the company's by-laws.
Finally, it's important to remember that in the context of small businesses, the election of directors is most often carried out by written resolution signed by all shareholders entitled to vote, to avoid holding a real shareholders' meeting and all the formalities that this entails.