It’s a very common practice, especially in organizations with larger boards, to have a subgroup of the directors form an executive committee that makes core decisions. But some caution must be exercised when deciding which powers to delegate to an executive committee – or indeed, to any subgroup of directors. Depending on the law that an organization is formed under, there may be restrictions on which of the directors’ powers can be delegated rather than exercised as a full body.
Federal non-profit corporations
Non-profit corporations established (or continued) under the Canada Not-for-Profit Corporations Act (the Act) are more constrained in this area. The Act doesn’t mention executive committees specifically, but does speak generally about committees of directors and the delegation of director powers.
Any of the directors’ powers can be delegated to a managing director or a committee of directors appointed by the Board, with some important exceptions and limitations:
1. The following powers are not permitted to be delegated under any circumstance:
- Submitting to the members any question or matter requiring the approval of members;
- Filling a vacancy among the directors, filling a vacancy in the office of public accountant, or appointing additional directors;
- Issuing debt obligations except as authorized by the directors;
- Approve the annual financial statements;
- Adopt, amend or repeal by-laws; or
- Establish contributions to be made, or dues to be paid, by members.
2. Borrowing powers can be delegated, but only if this delegating authority is not restricted in the corporation’s articles, bylaws, or a unanimous member agreement. Borrowing powers are defined as:
- Borrowing money on the credit of the corporation;
- Issuing, reissuing, selling, pledging, or hypothecating debt obligations of the corporation;
- Giving a guarantee on behalf o the corporation to secure performance of an obligation of any person; and
- Mortgaging, hypothecating, pledging, or otherwise creating a security interest in all or any property of the corporation, owned or subsequently acquired, to secure any obligation of the corporation.
3. An audit committee established to review the annual financial statements must be composed of at least three directors, a majority of whom are not officers or employees of the corporation or its affiliates.
Because of the rather detailed nature of these delegation rules, your federal non-profit corporation may want to consider drawing up a policy statement for the directors to refer to when deciding which powers to delegate.
Ontario non-profit corporations
Non-profit corporations established under part III of the Ontario Corporations Act are permitted to delegate any of the Board of Directors’ powers to an executive committee, but only if all of the following conditions are met:
1. There are at least six directors on the Board; and
2. The Board passes a bylaw, confirmed by a vote of two-thirds of the members, authorizing the Board to:
- Elect an executive committee of at least three directors from among the Board, and
- Delegate any powers of the board to the executive committee.
It may be a good idea to take a quick look at your Ontario corporation’s bylaws and Board set-up to ensure that no powers are being delegated improperly.
We do not have the space here to go through every non-profit act in the country, but the above should give you some idea of what the restrictions may be like. If your corporation is set up under a different provincial act, it may be well worth your time to review that act for director power delegation restrictions.