What follows is a summary of some of the key (or special) issues under the new Ontario Not-for-Profit Corporations Act (the New Act).
Currently, not-for-profits incorporated in Ontario are governed by the Corporations Act (Ontario) (the Current Act). The Ontario government has passed legislation to replace the Current Act. The Not-for-Profit Corporations Act, 2010, has not yet been proclaimed in force; that is anticipated to occur by the end of 2012. In the meantime, organizations governed by the Current Act are well served to review their letters patent, by-laws, policies and procedures to determine how best to transition to the New Act.
Rather than include a detailed discussion of the New Act, this article focuses on a few points of interest.
B. SOME SPECIAL ISSUES
Public Benefit Corporations
The New Act includes the concept of public benefit corporations (or PBC.) Charities are PBCs as are other entities that receive $10,000 or more a year from the government or persons who are not members, directors, officers or employees.
The assets of a PBC must be distributed on liquidation to another PBC. There are also implications for the type of financial review required. Note also that no more than one-third of the directors of a PBC may be employees.
Under the New Act, if a corporation puts an audit committee in place, the majority of the committee members cannot be officers or employees.
The definition of “officers” includes the chair of the board, the vice-chair, the president, vice-president, secretary, assistant secretary, treasurer, assistant treasurer and general manager. Thus, if some or all of those people are on the audit committee, the committee must be sufficiently large to include other members who are not officers or employees.
Information in the Articles
Currently, most NFPs have little (if anything) in their letters patent around membership rights. Under the New Act, the articles (which will replace letters patent), must create the classes of membership and must state the voting rights (otherwise all classes vote). The by-laws will set out the details regarding membership, such as the conditions for membership, the manner of transferring or withdrawing.)
The New Act provides for a number of members’ rights, including:
- the right to requisition meetings
- the right to nominate directors
- the right to vote by proxy
- the right to access records and membership lists
- the right to submit proposals to meetings
There are details around each of these rights – such as timing, percentage of members required to activate the right, and the like. There also are rights to dissent and force an appraisal under the New Act.
The New Act includes rights to vote even for non-voting members in certain circumstances. For example, there is a right to vote on the sale, lease or exchange of all or substantially all of the property of the corporation. In that case, the members of a class are entitled to vote separately as a class if they are affected differently from other classes. Similarly, a vote on dissolution requires a vote of each class whether or not the members are otherwise entitled to vote. There are also rights to vote on amalgamation and on continuance to another jurisdiction in certain circumstances. As well, amendments to the articles that impact on certain members’ rights also require a vote by members even if the members are otherwise non-voting.
The Current Act provides for quorum for a directors’ meeting of a minimum of two-fifths. The New Act sets a minimum of a majority of a fixed number of directors or the minimum number of a floating board. (So, if there were a fixed board of 10, a majority would be six. If there was a floating board of three to 10, the minimum quorum would be three.)
Directors are responsible for the management of the corporation and have the duty to:
- act honestly and in good faith with a view to the best interests of the corpora tion
- exercise the care, diligence and skill of a reasonably prudent person
- disclose any conflict of interest
- comply with the legislation and the corporation’s articles and by-laws
The New Act also includes provisions around how to deal with disputes between members and/or directors about the running of the corporations. There are also provisions around the discipline and expulsion of members.
As always, we would be happy to assist with specific questions and to help with the development of the documents required to comply with the New Act.