On October 19, 2010, the Ontario Government passed Bill 65, the new Not-for-Profit Corporations Act, 2010 (the NFPCA). The stated purpose of the NFPCA is to modernize the legal framework for Ontario’s 46,000 provincially incorporated not-for-profit corporations (NFPs). The new legislation follows the federal Not-for-profit Corporations Act which made similar reforms to the legislative scheme applicable to federally incorporated not-for-profit corporations.
The new NFPCA takes effect on a date to be named by proclamation. Once the Act is proclaimed, it will remove NFPs from the ambit of the present Ontario Corporations Act (the OCA ). The NFPCA will affect every existing NFP in Ontario. Directors, officers, and executives should start thinking now about what actions they will need to take to ensure that their organization’s governance structure and documents comply with the new legal framework.
This article provides a short synopsis of some of the main features of the NFPCA that may be of interest to an existing Ontario NFP and its directors, officers, and executives.
B. THE FIRST THREE OF OUR “TEN FEATURES OF THE ACT”
1. Continuing under the NFPCA
When the NFPCA is proclaimed in force, NFPs currently incorporated under the OCA 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 NFPCA. 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. Ontario NFPs would be wise to undertake a proactive governance review to assess whether their corporate governance documents and practices need to be updated or changed in anticipation of the NFPCA coming into effect.
2. Commercial Activities
Commercial activities are now specifically permitted and the ultra vires doctrine has been abolished.
Currently, a NFP is limited to acting within the “objects” set out in the corporation’s letters patent. Actions outside of these boundaries may be found to be ultra vires by the courts and declared null and void.
Under the NFPCA, NFPs will still be required to set out “purposes” in their articles of incorporation. Corporations will be permitted to have any purpose that is within the province’s legislative authority. If any of the purposes are commercial in nature the articles must provide that these purposes are to advance or support the corporation’s non-profit purposes.
Additionally, under the NFPCA, a corporation’s actions will no longer be declared invalid (i.e. ultra vires) simply because they are contrary to the NFPCA or the corporation’s articles or by-laws. For example, if a corporation enters into a transaction that is contrary to the corporation’s articles, the transaction will no longer be declared invalid simply because it was contrary to the articles.
3. Public Benefit Corporations
The NFPCA differentiates between public benefit corporations and non-public benefit corporations.
A public benefit corporation is defined as (a) a charitable corporation (a corporation incorporated for relief of poverty, advancement of education, religion or other charitable purpose) or (b) a non-charitable corporation that receives more than $10,000 in a financial year either as donations/gifts from persons who are not members, directors, officers, or employees of the corporation, or as grants or similar forms of financial assistance from the federal government or a provincial or municipal government or an agency of any such government. As explained below, public benefit corporations are treated differently with regards to, for example, audit requirements.
A non-public benefit corporation is any corporation that is not a public benefit corporation.