Beware the legal implications of 'electronic meetings'
Virtual reality, Internet chat rooms and video conferencing are just three examples of the ways in which technological advancements have assisted in the explosion of global human communication.
This is all very exciting when being used by global gamers, or to facilitate a live chat room discussion, or even to facilitate live web broadcasting around the world. However, using these technologies for the general operation of a business could result in the breach of laws and regulations that were passed or adopted before these technologies were even conceived.
The law has attempted to keep up with technology in some areas of business practice. A good example is the convening and management of company meetings. Subject to the provisions of the Companies Act 1981 (the "Act") and a company's by-laws, it is now possible for some meetings to be held with participants attending through telephonic or electronic media from anywhere in the world.
This sounds great, until you look at the legal implications of having participants attend meetings by such means. The type of meeting being held will determine what considerations need to be addressed from both a practical and legal perspective.
For example, when convening a general meeting of the members of a company the Act provides that the "place" of the meeting must be stated in the notice given to all persons entitled to receive the same.
This causes a problem if the company wants to hold the general meeting entirely electronically without a physical base at all. It has not yet been established whether a virtual meeting room on the Internet is a sufficient "place" for the purposes of holding general meetings.
Unless otherwise provided for in a company's by-laws, the "place" of meetings of the board of directors need not be specified in the notice, and so there exists more flexibility for the use of telephonic or electronic media in holding meetings of the board of directors. However, there is the wider concern, when organising board meetings where the mind and management of a company are involved, about whether the attendance at the meeting by some or all of the directors, either telephonically or electronically while gathered together in a foreign jurisdiction, would subject that company to tax liabilities in that jurisdiction.
Obviously each jurisdiction has a different approach to taxing companies incorporated and registered in other jurisdictions. However, typically, one key consideration that many tax authorities take into account when deciding whether a company has a tax presence in any particular jurisdiction is where the management and control of that particular company is deemed to be carried out.
So where does this leave Bermudian companies?
From a management perspective, a company will want to ensure that the mind and management of that company is not deemed to be in a jurisdiction where a tax liability could arise. Specific tax and legal advice should be sought in the jurisdictions where it is intended that directors of a Bermuda company will be situated while taking part in board meetings of that company by telephonic or electronic media.
In addition to taking local tax and legal advice, it may also be prudent for a company to have its by-laws amended so that particular meetings must always have a majority of participants physically present in Bermuda.
This is by no means a guarantee against issues arising in foreign jurisdictions and in each case the numbers and locations of attendees should be individually considered and legal advice sought.
In any event, all businesses (whether a company or otherwise) must be careful when organising and convening meetings of any kind where participants are being offered, or where management are considering offering, the opportunity of attending by telephonic or electronic media. As much as the law is continually developing to keep pace with the advancement of technology, it is almost always going to be one step behind – and as such when seeking the benefits of modern technology in the operation and management of your business you should always consider the legal implications alongside the practical benefits.
Attorney Steven Rees Davies is a member of the Telecommunications and Technology Team within the Corporate and Commercial Practice Group at Appleby. A copy of Mr. Rees Davies' column can be obtained on the Appleby website at www.applebyglobal.com. This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.