In every province non-share corporations have the option to incorporate provincially or federally. In most jurisdictions in Canada an existing corporation can also apply change jurisdiction. Thus, corporations often wonder what statute they should choose to govern the corporation.
Ontario based non-share capital corporations have two new statutes to consider when making this choice. The federal Canada Not-For-Profit Corporations Act (CNCA) is now in force and Ontario’s new Not-For Profit Corporations Act (ONCA) is expected to come into force January 1, 2014. Overall these statutes are very similar; however, there are many minor differences that may cause a corporation to prefer one statute over the other. This article sets out some of the bigger differences between the new statutes.
An ONCA corporation must have a registered office in Ontario. A CNCA corporation must have a registered office in a province in Canada specified in the corporation’s articles.
An ex-officio director is a director by virtue of their position. This means that the director is not elected by the members, but rather becomes a director because they hold a certain title, like Bishop of a Diocese, provincial representative of an organization, or Chair of a specific corporation. The ONCA allows for ex-officio directors, whereas the CNCA does not allow for ex-officio directors.
Directors who are Officers and Employees
The ONCA requires that a public benefit corporation cannot have more than one third of the directors who are employees. A public benefit corporation includes a charity and a non-charitable corporation that receives more than $10,000 from public sources in a year. A CNCA soliciting corporation must have least two directors who are not officers or employees. A soliciting corporation includes a corporation that receives more than $10,000 in public funding.
Under the ONCA a public benefit corporation must have an audit if its gross annual revenues are above $500,000. The members can elect each year to have a review engagement if the corporation’s gross annual revenues are between $100,000 and $500,000. The members can choose not to have an audit if the revenues are below $100,000. A CNCA soliciting corporation must have an audit if its gross annual revenues are above $250,000. The members can elect each year to have a review engagement if the corporation’s gross annual revenues are between $50,000 and $250,000. The members can choose not to have an audit if the revenues are below $50,000. Thus, the ONCA gives corporations more scope to opt out of an audit. Under either statute, if a corporation wants to avoid an audit then the members must pass the necessary resolutions each year.
Under the CNCA a corporation may provide for proxy voting and other forms of absentee voting such as electronic, telephonic and mailed in voting. There is no requirement to have these alternative voting methods, although corporations must specifically opt out of electronic and telephonic voting if desired. If a corporation has alternative voting methods, then the corporation must comply with the requirements of each such voting method in the CNCA regulations. The regulations provide that a proxyholder need not be a member. The regulations also provide that the mail, telephonic or electronic voting must be done in a way that the votes can be verified as having been made by the members entitled to vote and the corporation is not able to identify how each member voted.
The default in the ONCA is that every member may vote by means of proxy. Similar to the CNCA, the ONCA also provides that the proxyholder need not be a member. In the ONCA, the only way to opt out of proxy voting is to provide for mail, telephonic or electronic voting. Just like in CNCA under the ONCA mail, telephonic or electronic voting must be done in a way that the votes can be verified as having been made by the members entitled to vote and the corporation is not able to identify how each member voted.
Membership Class Voting
Both the ONCA and CNCA give separate voting rights to each class of members in respect of certain fundamental changes. These voting rights are also conferred on non-voting members. Thus, it can be difficult to structure a membership class that has control provisions such as a founding membership class. Similarly it can be difficult to structure delegate voting systems. Corporations that wish to have these types of structures should consider incorporation in or continuance to another provincial jurisdiction in Canada. For example, Saskatchewan has modern non-share capital corporation legislation that does not include separate class voting rights.
A CNCA soliciting corporation is required to file its financial statements prepared by a public accountant with the Director of the CNCA. The ONCA does not have a similar requirement. However, the regulations to the ONCA have not been released and thus we cannot be certain that the ONCA regulations will not contain this requirement.
When a soliciting corporation winds-up, the CNCA provides that its assets must go to a qualified donee under the Income Tax Act. A qualified donee includes other registered charities in Canada, governmental bodies and a few other similar entities. An ONCA charitable corporation must give its
assets on winding up to another ONCA charitable corporation or to a governmental body. An ONCA non-charitable public benefit corporation must give its funds to an ONCA public benefit corporation with similar purposes or to a governmental body.
This article has reviewed some of the biggest differences in the ONCA and CNCA. There are many other small changes in the two acts. The lawyers in Miller Thomson LLP’s charity and not-for-profit group can assist clients to choose a jurisdiction to incorporate in or to change a jurisdiction, if desired.