As discussed in our May 2010 newsletter, Ontario recently introduced Bill 65, the Not-for-Profit Corporations Act, 2010 (the “New Act”), which when passed will replace the current Corporations Act (Ontario). Over the summer, the bill was referred to a Standing Committee which heard submissions from various groups. The Miller Thomson Charities and Not-for-Profit Group was one of many parties who made representations on the proposed bill in hopes of making the bill more responsive to the needs of the charitable and non-profit sector. The Standing Committee made some notable improvements to Bill 65, which we discuss below. In anticipation of the bill being passed, we also discuss how non-share corporations incorporated under the Corporations Act (Ontario) will transition under the New Act.

Changes to Bill 65

One of the issues in Bill 65 was that the definition of “charitable corporation” was too broad and included some entities that may not be charities at common law. Under the New Act, “charitable corporations” are subject to restrictions that do not apply to other corporations. The committee addressed this issue and narrowed the definition of “charitable corporation”.

There was also a concern that a corporation may fall in and out of the definition of “public benefit” corporation. This presented a problem as public benefit corporations are subject to special requirements under the New Act and a switch in status could result in a corporation suddenly being offside the New Act. The bill was amended to provide that a non-charitable corporation is deemed to be a public benefit corporation as of the date of its first annual meeting of members in the next financial year in which it meets the criteria for a public benefit corporation. This will give corporations a chance to make necessary amendments following a change in their status.

The bill was revised to remove the requirement that directors be members. This will allow corporations to organize in the manner of their choosing and it will eliminate the need for a class of non-voting director members for some corporations.

The bill was amended to no longer require that two thirds of officers not be directors. This change will be a welcome relief for smaller charities, who will not need to find additional volunteers for officer positions.

Some corporations would prefer that proxies were not mandatory and that non-members could be restricted from being eligible to hold proxies. In recognition of this concern, the bill was amended to provide alternative forms of voting to proxies. The bill now provides that corporations can provide for voting by mail, telephone or electronic means in addition to or instead of voting by proxy. However, such means of voting requires that the corporation can verify that the votes were placed by the members entitled to vote and that they cannot identify how each member voted.

Under Bill 65, members of a corporation that do not generally have voting rights still have the right to vote on fundamental changes. We suggested that corporations should have the option of providing for a fully non-voting member class, as many corporations grant membership not to provide shareholder type rights on corporate decisions, but rather to recognize a person’s contributions or to encourage some inclusion of a periphery group. For example, some corporations confer “honourary memberships” as a type of award for outstanding service to the corporation. Other examples of members for whom voting rights may be inappropriate are student members, service providers or suppliers to the members of a corporation, and members who pay a small fee to access a cultural institution for the year. Despite our requests and the requests of others, the Standing Committee did not change the proposed rights for these non-voting members. Many groups will have to re-structure their current memberships to avoid granting these rights to those who were not meant to have a say in fundamental corporate changes.

Similarly, while we suggested the need for further liability protection for directors and officers, this was not addressed in the revised bill.

Transition to the Not-for-Profit Corporations Act, 2010

The bill is currently scheduled for third reading. Once passed the Not-for-Profit Corporations Act, 2010 will become effective on a day to be proclaimed by the Lieutenant Governor. The Act will apply to corporations without share capital incorporated by or under a general or special Act of the Ontario Legislature, the Province of Upper Canada, and Parliament of the late Province of Canada (if it has its registered office and carries on its activities in Ontario and was incorporated with purposes that are within the legislative authority of the Province of Ontario). This includes non-share corporations incorporated under the Corporations Act (Ontario). There are corporations to which the New Act will not apply, including a group of professional corporations listed in Bill 65 and corporations without share capital to which the Co-operative Corporations Act or Part V of the Corporations Act applies (i.e. insurance corporations).

Once the legislation is in force, a corporation may obtain articles of amendment to bring its governing documents into conformity with the New Act. If a corporation does not do so within 3 years, the New Act deems the governing documents to be amended to the extent necessary to conform with the New Act. Once this legislation is passed, we will be assisting non-share corporations over this three-year period to make the necessary changes to their governing documents. However, if a corporation fails to take action during this time, it will be deemed to comply.

Corporations with share capital with objects in whole or in part of a social nature may apply to be continued under the new Act within five years of it coming into force. These corporations will need to take action to ensure the New Act applies.