Non-share corporations incorporated under the Corporations Act (Ontario)(“OCA”) should be preparing for the transition under the new Not-for-Profit Corporations Act (Ontario)(“ONCA”). As we have reported previously, the Ontario government has announced that the ONCA will likely come into force on July 1, 2013. The ONCA has been passed by the Ontario Legislature but is not yet in force. It will come into force on the day named by proclamation. Time will tell if the July 1, 2013 date becomes a reality. Before the ONCA comes into force, it is important that Ontario corporations review their membership structure and decide whether action is necessary before the in-force date.
On the day that the ONCA comes into force, the ONCA will immediately apply to corporations without share capital incorporated by or under a General or Special Act of the Ontario Legislature. These corporations will not need to take any action to have the ONCA apply to them. However, Ontario corporations will still need to take action in order to ensure full compliance with the ONCA. The ONCA is significantly different from the OCA and, thus, each Ontario non-share corporation will need to revise its governance documents (i.e. its Letters Patent and By-law) to accord with the ONCA.
One of the more significant and potentially challenging aspects of the ONCA is its granting of the voting rights to members who, under the current regime, would not have the right to vote on corporate decisions. The ONCA will significantly constrain the ability of corporations to have non-voting members. Under the ONCA, non-voting members will have the right to vote on certain fundamental corporate changes. In some cases, each class or group of members will have a separate class vote, which means each class will have to pass a change by a 2/3 approval before the change can occur. This effectively allows a minority of a single class to veto any action.
Fundamental changes include:
- amendments to the rights of the class of members;
- amalgamation with another corporation;
- continuance of the corporation into another jurisdiction;
- the sale of substantially all of the corporation’s assets; and
- a proposal to dissolve, or to liquidate and dissolve, the corporation.
Corporations that do not want their non-voting members to vote or do not want separate class votes will want to change their membership structure before these voting rights come into force. Thus, the first step for a corporation under the OCA is to determine whether it has non-voting members or various classes of members that should be revised before the ONCA comes into force.
For corporations that do not have these membership issues, the corporation will still need to update its By-law; however, these corporations can wait until the government has released regulations for the ONCA before making any changes. Waiting will allow these corporations to pass a By-law that complies with the regulations.
Organizations should review their current Letters Patent and By-Law and determine whether the corporation wants to make any changes or whether any changes are required to ensure compliance with the ONCA. Once these changes have been made to the corporation’s governing documents, the corporation can then proceed to hold the necessary directors' and members' meeting to pass these documents. Once the signed documents are completed, they must be filed with the necessary governmental bodies.