What these changes may mean for you
At the bottom of the list of most volunteer organizations, often operating on a shoestring, is concern about the legislation that deals with governance. After all, there have been virtually no changes in over fifty years. But, new developments have now taken place at both federal and provincial levels and we need to take notice. Below are some of the highlights of the legislation.
Federally, the Canada Not-for-Profit Corporations Act received Royal Assent on June 23, 2009 and is in force. The Ontario Not-for-Profit Corporations Act received Royal Assent on October 25, 2010 and is scheduled to come into force in July 13, 2012. Both acts are based on business corporation models and will have impact on all not-for-profit corporations.
The ongoing concern as to how money donated by the public is being spent is reflected in the creation of new obligations for what is called a “soliciting corporation” under the federal Act, and “public benefit corporation” under the Ontario Act. Corporations falling under those definitions will need to pay attention to stricter financial reporting requirements, new membership rights, and various restrictions on directors and distribution of assets on dissolution.
The rules in both federal and provincial acts apply by default and cover such areas as the qualifications of directors and officers, their appointment, removal and remuneration. Statutory rules cover the conditions for and granting of membership, in addition to termination and member discipline, as well as member remedies against corporate directors. Rules also deal with how meetings are to be held, voting by proxy, mailed-in ballot and telephonic or other electronic communication facility for voting. Members elect directors and non-members may vote where there are changes that affect their rights, for example, sale of substantially all of the assets, certain amendments to the articles or by-laws, etc.
Canada Not-For-Profit Corporations Act
The federal legislation can’t be ignored since every federal corporation incorporated under prior legislation has to make the transition to the new Canada Not-For-Profit Corporations Act by October 17, 2014. This is done by submitting articles of continuance and new bylaws to Corporations Canada. Once these items are submitted as required, a Certificate of Continuance will be issued bringing the corporation into the new Act. The articles of continuance are essentially the constitution of the corporation. If the application for continuance is not made by the required October 17, 2014 date, the corporation will be dissolved on the assumption that it is inactive.
Prior to submitting the articles of continuance and new bylaws, a detailed review of existing governance documents and comparison with the requirements of the new Act should be made. The Act will apply its rules by default if there are gaps in the corporation’s own document, so it may not be necessary for corporate bylaws to be as comprehensive as in the past. Some rules are mandatory, while others can be altered to suit the organization’s needs. Both model articles and a model bylaw are provided by Corporations Canada. Charitable corporations should ensure that the new corporation meets all requirements of Charities Directorate, Canada Revenue Agency to maintain charitable status.
The new articles and bylaws will, of course, require membership approval. The corporation should use the requirements in its existing bylaws in calling its membership meeting. The articles of continuance themselves must be approved by two-thirds of the votes cast by members of the corporation who are entitled to vote.
The federal Act creates the new category: “soliciting corporation.” A corporation becomes a soliciting one when the threshold of $10,000 in receipts in public gifts and donations, including governmental financial assistance, is reached. If your organization meets the test at the end of the financial year, it will be designated a soliciting corporation at the next annual meeting. That designation will remain until the annual meeting three years later, with the test being applied or renewed annually. Once designated as a soliciting corporation, financial statements must be filed with Corporations Canada within the prescribed period after they are presented to members. Also, on liquidation or dissolution of such a corporation, corporate assets must be distributed to a “qualified donee” as defined by the Income Tax Act.
A federal not-for-profit corporation may have just one director, but once it becomes a soliciting corporation it must have at least three directors, and at least two of those must be at arm’s length. With respect to financial reporting, the Act sets criteria for appointment of a public accountant and determination of level of financial review required.
Ontario Not for Profit Corporations Act
If your corporation is a provincial not-for-profit, you will need to review the new legislation to ensure all of its governing documents are consistent with the new provisions. Unlike the federal Act, provincial corporations may, but need not, file new articles or bylaws. The provisions in the Ontario Not-for-Profit Act supersede any provisions that are in conflict with the new legislation and in default will fill any gaps. However, it is recommended that corporations do review their articles and bylaws in any case. If the default bylaws do not suit the organization, new articles and bylaws should be submitted by the required time to avoid being encumbered by unsuitable default rules where it could have been altered.
Like the federal Act, the provincial act treats not-for-profit corporations receiving public funds in excess of $10,000 annually differently than those not getting such funding from the public or government. The term given by the provincial legislation is a “public benefit corporation.” Many of the requirements of a public benefit corporation are similar to those of a federal “soliciting corporation.” Provincially, the test is applied at the end of each financial year for the current financial period, and takes effect on the date of the first annual members’ meeting in the next financial year. The test is applied annually. Unlike the requirement that a soliciting federal corporation must file financial statements with Corporations Canada with in a prescribed period, there is no requirement for a provincial public benefit corporation to file with the Ontario Ministry. Provincial charities do have obligations as to filing with Ontario’s Public Guardian and Trustee, however.
All Ontario not-for-profit corporations must have a minimum of three directors The new Act requires that at least two-thirds of the directors be members of the corporation, and that no more than one-third of the directors of a “public benefit corporation” may be officers or employees of the corporation or its affiliates. Unlike the Canada Not-For-Profit Corporations Act, the provincial Act specifically permits ex-officio directors or “directors by virtue of their office.”
The size and nature of the activities of a not-for-profit organization, whether local or federal, will generally determine whether or not to incorporate under the federal or provincial Act. However, in making the decision, it may also be useful to consider the treatment in the Acts of other factors such as rights of members, financial reporting, etc. There may be cases where it is in the best interest of a corporation to change from a provincial to a federal not-for-profit corporation, or vice versa. Proper legal advice should be obtained.
The above are just some of the highlights that those involved in the not-for-profit sector should attend to in light of the new legislation at both provincial and federal levels. The information is not meant to replace proper legal advice, but only as an alert to the provisions of the Acts and the need to deal with the new requirements. I hope it is helpful.
The law firm of Barbro E. Stalbecker-Pountney is a general practice firm restricted to non-litigious matters. While focusing on advising clients in the areas of wills and estates, the firm offers a broad range of services, including not for profit corporations and charity law, partnerships and business associations, incorporation and corporate maintenance, contracts and agreements, uncontested family matters and real estate.