In 2010, the Ontario legislature enacted the Not-for-Profit Corporations Act, 2010 (the “ONCA”). The ONCA has not yet been proclaimed in force. It is expected to be proclaimed in force in late 2012. Currently, the Corporations Act (Ontario) (the “OCA”) governs non-share capital corporations in Ontario.
CURRENT APPLICATION OF THE OCA TO SPECIAL ACT CORPORATIONS
Corporations incorporated by an Ontario special or private act (“Special Act Corporations”) may be governed by a combination of their particular special acts and the Corporations Act. There are two basic approaches to the relationship between the OCA and a Special Act Corporation. One approach is to exclude the OCA except to the extent that specific provisions of the OCA are made applicable to the Special Act Corporation by the special act (example: “The OCA does not apply to SpecialActCo. except for Sections X, Y, and Z: “Exclusionary Approach”). The second approach is to adopt the OCA in total except to the extent that the special act excludes specific provisions of the OCA (example: “The OCA applies to SpecialActCo. except for Sections X, Y, and Z: the “Inclusionary Approach”).
Under the OCA, if a Special Act Corporation’s special act does not choose either approach, the default rule is the latter: the OCA applies to every Special Act Corporation except to the extent otherwise provided. Therefore, if a Special Act Corporation does not exclude any part of the OCA, all of the OCA applies.
However, once the ONCA is proclaimed in force, certain provisions of the OCA, including those that state that, by default, the OCA applies to every Special Act Corporation, will be automatically repealed. In other words, at such time, the OCA will no longer, by default, apply to a Special Act Corporation.
FUTURE APPLICATION OF THE ONCA TO SPECIAL ACT CORPORATIONS
With respect to non-share capital corporations, the ONCA will take the same approach as the OCA: once proclaimed in force, the ONCA will automatically apply in its entirety to every body corporate without share capital incorporated by or under a general or special Act of the Legislature except where it is otherwise expressly provided. In the event of a conflict between the ONCA and the special act, Section 5 of the ONCA states that the special act will prevail. Therefore, if a special act Corporation does not want the ONCA in whole or in part to apply to it, it will have to have its special act amended to specifically exclude the ONCA as desired.
It is important to note that the Lieutenant Governor in Council has been granted the authority to make regulations under the ONCA prescribing the provisions of the ONCA that will apply to Special Act Corporations, regardless of what their relevant special acts state.
CONTINUATION UNDER THE ONCA
Two options are provided to a Special Act Corporation under the ONCA: (1) it can continue to be governed by its special act, and also be subject to certain parts of the ONCA as specified in the special act; or (2) it can continue under the ONCA, in which case the Special Act Corporation will be subject to all of the sections of the ONCA and the special act will no longer govern the Special Act Corporation.
- Option #1
If a Special Act Corporation chooses to be governed by both its special act and certain provisions of the ONCA, it will need to have an amendment or regulation made to its special act specifying the application of the ONCA.
- Option #2
If the Special Act Corporation elects to continue under the ONCA, it will need to have its members agree, by special resolution, to apply for a certificate of continuance under the ONCA. Once consent is obtained, the Special Act Corporation will be able to apply for a certificate of continuance by filing articles of continuance together with any other prescribed documents and information and the required fee, if any.
Upon the issuance of a certificate of continuance, the special act will cease to apply to the Special Act Corporation. As a result, by-laws complying with the ONCA should also be prepared that will take effect upon the date of continuance.
Typical reasons for continuance include a desire to escape the political charter amendment process and the usual benefits arising from operating under a modern corporate statue. Many Special Act Corporations may also opt to have the ONCA apply, in part, to them because of the lack of detail in their special acts. However, being governed by both a special act and a piece of legislation can be confusing. A Special Act Corporation should therefore consider choosing a sphere to exist under in entirety (e.g. the special act or the ONCA) in order to minimize any governance ambiguity and conflict.