On October 25, 2010, the Ontario Not-for-Profit Corporations Act, 2010 (the “ONCA”) received Royal Assent. The ONCA will come into force on January 1, 2013, replacing the current Ontario Corporations Act.
- Who Will be Affected by the ONCA?
On January 1, 2013, the ONCA will automatically apply to every existing non-share capital corporation incorporated under the Ontario Corporations Act or by a special act of the Ontario legislature. It will also apply to every new Ontario non-share capital corporation.
The introduction of the ONCA will also affect certain Ontario social clubs. A social club is a corporation with or without share capital whose purpose is “in whole or in part social in nature”. Golf clubs, for example, are social clubs.
Some social clubs have been incorporated as share capital corporations under the Ontario Business Corporations Act. These social clubs will not be affected by the ONCA and will continue to be governed by the Ontario Business Corporations Act.
Other social clubs have been incorporated either as share capital corporations, or non-share capital corporations, under the OCA. Social clubs incorporated as share capital corporations or non-share capital corporations under the OCA will be affected by the ONCA.
Below I offer answers to some immediate questions that OCA-incorporated social clubs are likely to have about the ONCA. Please remember that the ONCA has not yet been called into force and that this analysis is thus subject to amendments made in the course of the legislative process.
- Does my organization need to do anything to continue under the New Act?
- If your social club is a non-share capital corporation...
When the ONCA is proclaimed into force on January 1, 2013, existing non-share capital corporations incorporated under the OCA (including social clubs) will automatically be governed by the ONCA. However, they will also be obligated to continue to abide by their existing letters patent and by-laws. Such corporations will have three years to file articles of amendment to amend their letters patent, supplementary letters patent, by-laws, or special resolutions to bring them into conformity with the ONCA. If no such action is taken after three years, the necessary amendments will be deemed to have been made.
Failure to act and letting amendments be deemed to have been made will inevitably lead to ambiguity and uncertainty. The resulting questions, issues, and confusion may create more headaches and work than if articles of amendment had been filed properly within the three year window. Once the three-year clock starts ticking, Ontario non-share capital corporations would be wise to undertake a proactive governance review to assess whether their corporate governance documents and practices need to be updated or changed.
- If your social club is a share capital corporation...
When the ONCA is proclaimed in force on January 1, 2013, share capital corporations incorporated under the OCA will remain under the purview of the OCA and will have 5 years to continue as:
- a corporation without share capital under the ONCA;
- a co-operative corporation under the Ontario Co-operative Corporations Act; or
- a corporation under the Ontario Business Corporations Act.
If one of these options is not chosen and completed within the five-year timeline, the corporation will be dissolved.
- What Needs to be Done to Continue under the ONCA?
In order to continue as a non-share capital corporation under the ONCA (Option #1, above), a special resolution (3/4s vote) of the members of the corporation authorizing filing for articles of continuance will be required.
By-laws will also need to be created that comply with the ONCA. Director and member approval is required to amend by-laws.
Once a corporation receives articles of continuance from the Ministry, it will fall under the ambit of the ONCA.
If a non-share capital corporation chooses to continue under the Ontario Co-operative Corporations Act or the Ontario Business Corporations Act, these pieces of legislation and their respective procedures will need to be consulted and followed.
- What Should Share-Capital Corporations Consider When Choosing An Option to Take?
Basic considerations such as, which piece of legislation meets the need of my corporation the best? And which structure (share capital vs. non-share capital) make the most sense going forward?, are obviously important.
The majority of questions, though, will surround the rights of existing and future members. How will the members be compensated for the loss of their shares? How will debentures and other interests be affected? What types of membership classes will be created and what rights will each have?
Five years may seem like a long time but finding solutions to these issues, and receiving the approval and support of the members, will most likely be extremely time-consuming and complicated (both politically and procedurally). Starting a dialogue now will help to eliminate the added pressure of an impending deadline.