Changes in the Not-for-Profit/Charitable World

Federal

We previously reported on the new Canada Not-For-Profit Corporations Act (CMPCA). This is an update with respect to this new act, which received Royal Assent on June 23, 2009 but is not yet proclaimed in force. On October 1, 2010, Corporations Canada published a notice advising that the user fees proposed under the new CMPCA and associated service standards were tabled on the House of Commons on September 20, 2010 and in the Senate on September 27, 2010. This is the final step for the fee approval process under the User Fees Act. Prior to the tabling of the fees, public consultations on the fees and service standards were held and the required official notice published in the Canada Gazette. Once the fee approval process is complete, the next step is the formal approval of the regulations. The proposed regulations under the CMPCA included the pre-publication of the proposed regulations for public consultation. The regulations are available on Industry Canada’s website. They are expected to be approved in the spring of 2011, which will then allow the CMPCA to come into force. It is Corporation Canada’s intention to release materials on the new act, particularly relating to the transition process, at least one month prior to the coming into force of the act. These materials will include:

  • a step-by-step guide to the transition under the new act;
  • model bylaws and articles; and
  • reporting obligations under the new act.

As you know from our previous information on this new act, corporations that are presently governed by Part II of the Canada Corporations Act will have three years from the date the CMPCA comes into force to continue under the new act. If you are governed by Part II of the Canada Corporations Act, you should seek legal assistance to deal with the transition and revamping of your articles and bylaws under the new act. Many of you will be pleased to know that it is no longer a requirement to have objects clauses under the new act. Not-for-profit corporations will have all the powers of a natural person, but can choose to restrict the activities the corporation can carry on by adding appropriate restrictions.

Ontario

The Province of Ontario is also reforming its not-for-profit legislation. On May 12, 2010, Ontario introduced Bill 65, the Not-for-Profit Corporations Act. Once this bill becomes law, it will replace Part III of the Corporations Act that currently governs Ontario not-for-profit corporations.

In its press release introducing the bill, the Ministry of Consumer Services indicated there are approximately 46,000 not-for-profit corporations in Ontario that will benefit from this modern legal framework enhancing corporate governance and accountability, simplifying the process of incorporation, giving more rights to members, and better protecting directors and officers from personal liability.

Among the highlights in Bill 65 are:

  1.  A proposed system of incorporation "as of right" replacing the old letters patent system. The new system will take a matter of days, as opposed to several weeks, for incorporation.
  2. As with the proposed federal changes, the Ontario bill will provide that not-for-profit corporations have all the powers of a natural person and object clauses will become history. It will be also possible to restrict the powers of a corporation.
  3. The new act provides for an objective standard of care for directors that is similar to the objective standards provided under other modern corporate statutes such as the Ontario Business Corporations Act. The new act in Ontario will also establish a due diligence defence and give directors the right to dissent.
  4. With respect to membership, the new act requires bylaws to set out conditions required for being a member and permits the bylaws to provide for persons to be members by virtue of holding an office. If there are to be two or more classes of members, and if the articles so provide, the bylaws must also provide conditions for membership in each class, the manner of withdrawing or transferring from membership and the conditions on which membership in a class terminates. In addition, articles or bylaws may contain provisions regarding discipline of members. There are detailed provisions also relating to membership proposals, number of meetings and voting.
  5. Like the Ontario Business Corporations Act (after which the bill appears to be modelled), Bill 65 allows a current or former member, officer or director to apply to court to commence a derivative action on the corporation’s behalf. If a member dissents from a decision to make a fundamental change in the corporation, they are given a right to object and to have their interest terminated on payment of the membership interest in the corporation (if any). In addition, such a person may also apply to court for a compliance or a restraining order where the corporation is not in compliance with the act, its regulations, the corporation’s articles or bylaws.
  6. Most fundamental changes to a not-for-profit corporation will require a special resolution of members. If there is more than one class as members, each class is entitled to vote as a class to approve any changes affecting their class as membership.
  7. The new act also contains detailed dissolution and winding-up procedures. With respect to distribution of remaining property by a corporation on dissolution, the rules will depend generally on whether the corporation is a "public benefit corporation," a "charitable corporation," or "a non-charitable corporation."

Bill 65 received Royal Assent on October 25, 2010 and it is anticipated that it will likely not be proclaimed into force until 2012. The new act will govern non-share capital corporations, removing them from the governance of the Corporations Act. However, the Corporations Act will continue to apply to insurance corporations and, for five years, to corporations with objects of a social nature. The social object corporations will have five years to continue under the Not-For-Profit Corporations Act, 2010, the Co-operative Corporations Act or the Business Corporations Act. Corporations governed by the new act will be required to bring their letters patent and bylaws into conformity with the new act and should do so by filing articles of amendment and amending their bylaws once the new act is in force. Interestingly, the new act provides that any provision that is not amended to conform with the new act is deemed, after three years, to be amended to the extent necessary to conform. Relying on a deeming provision could result in much confusion. We recommend taking this change in the law as a catalyst for updating the letters patent, bylaws and corporate documents to ensure conformity with the new act. Accordingly, unlike the federal regime which will involve a formal continuance application under the CMPCA, the new act in Ontario will apply automatically once Bill 65 is proclaimed in force.

As the Corporations Act became law in 1907, it is a welcome development to have Bill 65 on the threshold of replacing Part III of the old statute.

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