On November 28, 2016, the new Societies Act (which will replace the old Society Act) will come into force. It will modernize and clarify society governance, procedures and accountability, and will also better align BC society governance with BC corporate governance.
Some of the key changes include: enhanced flexibility for annual general meetings (AGMs), greater responsibilities for directors, and the introduction of the concepts of senior managers and member-funded societies.
Annual general meetings
Under the new Act, in an effort to modernize society governance, the procedures for holding AGMs will become more flexible. For example:
- Societies will be able to waive the requirement to hold an AGM if all voting members consent to written resolutions regarding AGM matters;
- Societies will be able to hold meetings at any time of the year and members will be able to participate via telephone or video-conference;
- Voting members will be able to appoint a proxy holder to vote on their behalf either for single meetings or more generally (provided the bylaws allow it); and
- The minimum threshold for passing a special resolution will be decreased from three-quarters to two-thirds (Note: societies may have to amend their bylaws to take advantage of this amendment).
Directors and senior management
Under the new Act, directors of societies will have greater responsibilities. The new Act clarifies that directors may be held personally liable for payments made by the society which are contrary to the new Act or the society’s bylaws if they voted or consented to the payment, unless they relied reasonably and in good faith on society records. If a director has a conflict of interest with respect to a society matter, the new Act expands and clarifies rules that will have to be followed for disclosing and managing such conflict.
Directors will be required to explicitly consent to act as a director, either at an AGM or in writing. They will not be entitled to any remuneration for acting as director unless the society’s bylaws provide for director remuneration.
The board of directors must meet the following requirements:
- There must be at least three directors and at least one of them must reside in BC (not applicable to member-funded societies which are discussed below);
- A majority of the directors must not be employed at the society, either as employees or contractors (not applicable to member-funded societies); and
- The directors (and senior managers, if any) must not be bankrupt, must not be recently convicted of fraud, and must (subject to some exceptions) be at least 18 years of age.
The new Act introduces the concept of a “senior manager,” which is a person appointed by the directors to manage the affairs of the society. Directors will be entitled to delegate their authority to senior managers. Both directors and senior managers will be able to borrow money or issue bonds on behalf of the society with no restrictions, unless the bylaws state otherwise.
If a society wishes to put further restrictions on who can become a director or senior manager, those should be included in the society’s bylaws.
Financial disclosure requirements and restrictions on asset distributions
In an effort to promote accountability and transparency, publicly-funded societies will be required to disclose in their annual financial statements (which must be made available to the public upon request) remuneration levels of their top ten employees and contractors (if they make more than CA$75,000), and any director compensation, regardless of the amount.
Societies will also be required to disclose any financial assistance given to third parties.
On dissolution, publicly-funded societies will only be able to distribute assets to certain “qualified recipients,” such as other publicly-funded societies, registered charities or trustees of a charitable trust.
The new Act provides that eligible societies which are funded primarily by their members will be entitled to operate under a new set of rules for ”member-funded societies”. Due to the private nature of their funding, member-funded societies will be subject to more flexible rules in a variety of areas. Most societies will not qualify as member-funded societies: for example, all registered charities, societies that receive more than 10 percent of their funding from government or public sources and hospital societies will all be considered publicly-funded societies. However, the designation is worthwhile to consider given enhanced flexibility and lower administrative burdens for such societies.
Member-funded societies will not be required to disclose the remuneration of their directors or employees to the public, and will only need to elect one director, who can be a non-resident of BC. The directors will not be precluded from employment with or contracting for the society.
On dissolution, member-funded societies will be entitled to distribute property to any person specified in their bylaws or in an ordinary resolution. Alternatively, a member-funded society will be able to convert into a BC company.
Upon transition to the new Act, current societies should carefully consider whether they are eligible to become member-funded societies. If left until after the transition, changing their status from a publicly-funded society to a member-funded society will require a court order.
Constitution and bylaw revisions
Under the new Act, a society's constitution will be limited to the society's name, purpose and a member-funded clause, if applicable. All other clauses must be moved to the bylaws. As well, societies that are currently “reporting societies” must have prescribed provisions in their bylaws. As of November 28, 2016, any provision in a society’s bylaws which is contrary to the new Act will no longer be effective. In addition, provisions contained in the constitution that were previously unalterable will now be alterable.
Transitioning to the new Act
Societies will be required to transition to the new Act and will have two years to do so. Societies will also have two additional years to meet the board composition requirements under the new Act. In order to transition to the new Act, each society will need to file an electronic version of their constitution and bylaws, and a statement of the current directors and registered office of the society. Societies may move clauses from their constitution to their bylaws as required by the new Act without a special resolution, however if societies wish to make further changes to their constitution or bylaws, a special resolution of the society must be passed. Changes to a society’s bylaws can be made concurrently with their transition application, or before or after transition. However, any changes to the society’s purposes must be made separately, and any amendments made outside of the transition process will be subject to a CA$50 Registrar fee.
In light of the numerous changes to the regulation and governance of societies, we recommend that a full bylaw review be completed and any amendments be incorporated into a transition application.
Please note that the changes to the new Act addressed herein are not exhaustive.