Effective November 28, 2016, the current Society Act (BC) will be repealed and replaced with the Societies Act (BC) (“New Act”). While maintaining much of the same basic not-for-profit framework that currently governs BC societies, the New Act significantly modernizes – for the first time since the 1970s – the governance regime to which BC societies are subject and introduces a number of new concepts.
All BC societies will have to actively transition to the New Act within two years of its in-force date; however, irrespective of whether this transition has been completed, many of the provisions contained in the New Act will apply to societies as of November 28, 2016. It is therefore in the best interest of all societies and their advisors, volunteers and employees to become familiar with this new legislation as soon as possible. To aid in the preparation for the transition process, we identify below ten key features of the New Act and discuss some steps that societies can take now to ready themselves for transition.
10 key features of the New Act
1. Structure of charter documents
The New Act continues to require societies to have both a constitution and bylaws; however, provisions – other than a society’s name and purposes – that were previously in its constitution must be shifted to the society’s bylaws. Furthermore, societies will no longer be permitted to have unalterable provisions; previously unalterable provisions may be amended in accordance with the New Act, although it is worth noting that the New Act also allows the approval threshold for a special resolution amending a particular bylaw provision to be increased so high as to render it practically unalterable in any event.
2. Capacity of a society
The New Act establishes that a society has the capacity, rights, powers and privileges of an individual of full capacity and expressly confirms that – while a society may not carry on any activity or exercise any power that is restricted by its bylaws or contrary to its purposes – an act of the society is not invalid merely because it is contrary to the society’s bylaws or purposes. This clarifies any existing ambiguity regarding the validity of a society’s activities when they are not expressly contemplated by its purposes.
3. Member-funded societies
The New Act introduces the concept of “member-funded societies,” being societies that are primarily funded by their members to carry on activities for the benefit of those members rather than for the general public. Member-funded societies will be subjected to less stringent governance standards; for example, they need not disclose director and employee/contractor remuneration and their financial statements are not subject to the same broad access rights as “publicly-funded societies.”
A variety of societies are prohibited from being member-funded societies, including:
- societies that have received – as public donations or government funding – a total amount in the immediately preceding two financial years that is greater than $20,000 and 10% of their gross income for that period;
- registered charities;
- student societies;
- hospital societies and service providers under the Community Living Authority Act;
- societies that receive funding from the British Columbia Housing Management Commission; and
- societies that are authorities under the Independent School Act and have received under that Act a grant for the previous school year.
Societies can become “member-funded societies” upon transition or incorporation by including a prescribed statement in their constitution; becoming a member-funded society at a later date, however, requires obtaining a court order to that effect.
Under the New Act, directors may be elected or appointed in the manner contemplated in a society’s bylaws. The legislation also expressly contemplates that an “ex officio director” who holds a particular office or who has a specified attribute may, by virtue of holding that office or having that attribute, be appointed as a director of the society. Furthermore, directors may be removed in any manner contemplated by a society’s bylaws, although the ability for members to remove directors by special resolution is preserved, regardless of what is provided for in the bylaws. Finally, the New Act retains the requirement for societies to have a minimum of three directors, at least one of whom is resident in BC, although permits member-funded societies to have only one director with no residency requirements.
The New Act establishes certain director qualifications and expressly allows societies to impose additional qualifications in their bylaws. One statutory requirement is that directors must be 18 years old; however, the New Act allows individuals who are 16 or 17 years old to serve as directors in certain circumstances. Directors who do not meet the qualifications under the New Act or a society’s bylaws must promptly resign.
Unlike the existing Society Act which requires five members for incorporation and three members thereafter (and imposes personal liability on directors for a society’s debts should the number of members fall below three), the New Act allows a society to be incorporated with one or more persons. The New Act also expressly provides for different membership classes and allows different rights to be allocated to each. Finally, the New Act provides members with a number of remedies with which to pursue alleged governance irregularities or defects.
6. Members’ meetings and resolutions
The New Act allows a society’s annual general meetings to be conducted by way of written consent resolutions instead of in-person meetings. Furthermore, the New Act confirms the ability for societies to give electronic notice of meetings and permits member participation by electronic means.
The New Act retains the ability for members to requisition meetings and also allows for members to make proposals for consideration at an upcoming members’ meeting, provided that the proposal has the support of 5% of the voting members and is not rejected by the society on the basis that it is substantially the same proposal as one considered at a general meeting held in either of the two previous calendar years.
Finally, the threshold for approving a special resolution has been reduced from 75% of votes cast to the more common 66% of votes cast, although the New Act allows a society’s bylaws to provide for a higher voting threshold to effect any action that requires authorization by special resolution. In addition, special resolutions will no longer need to be filed before becoming effective.
7. Senior managers
The New Act introduces the concept of a “senior manager,” being an individual appointed by the directors of a society to exercise their authority to manage the activities or internal affairs of the society as a whole or in respect of a principal unit of the society. Such appointment does not, however, create contractual rights between the society and the individual in and of itself. Senior managers are subject to a variety of requirements under the New Act in respect of their qualifications, duties, legal defences and indemnification, among others.
8. Disclosure of remuneration
Financial statements issued by a society that is not a “member-funded society” must include a note in respect of:
- remuneration paid to directors, either for being a director or for acting in another capacity, which need not identify the directors by name but must include the position or title of each such director; the amount of remuneration paid; and the description of the capacity in which each such director acted, as applicable; and
- remuneration paid to employees and persons under contract for services with the society, whose remuneration was at least $75,000, provided that if there are more than 10 such persons only the 10 most highly remunerated persons must be disclosed, consisting of a list of either (i) such persons identified by position or title (but need not identify such persons by name) and, as applicable, the nature of the contractual services provided, and the remuneration paid to each; or (ii) the total number of those persons and the total amount of remuneration paid during the applicable period.
9. Record keeping
The New Act clarifies the corporate record-keeping requirements for BC societies and the access allowed to such records by directors and members, among others. Records may be kept in physical or electronic form provided that the necessary precautions are taken. The New Act also provides some guidance as to how long certain corporate records must be maintained, although caution should be exercised by societies before discarding any particular record.
All pre-existing BC societies must file a “transition application” within two years of the New Act coming into force, consisting of the society’s constitution (containing only its name and purposes) and bylaws, each as they existed immediately before the New Act came into force with such amendments as are required under the New Act and any additional amendments as may be approved by special resolution. The application must also include a statement of directors and registered office.
Although the New Act only requires societies to make relatively minor amendments to their charter documents, such as shifting certain provisions from the constitution to the bylaws and identifying other provisions as having previously been unalterable, we recommend that societies consider amending their bylaws more fully to address the new concepts and terminology contained in the New Act. Such substantive amendments will require approval by a society’s members in addition to its directors.
Start preparing for transition now!
Given the immediate application of the New Act, we anticipate that most societies will want to complete their transition as soon as possible after November 28, 2016. Accordingly, we recommend that societies start working towards their transition now. To prepare for the New Act, societies should:
- locate and confirm their existing charter documents (a package of which may be obtained from the BC Registrar of Companies);
- if necessary as a result of piecemeal amendments made over the years, consider consolidating their existing bylaws now;
- assess whether the substance of their constitution and bylaws reflect their existing practices, activities and governance structures and whether changes may be required;
- consider whether they might qualify as a member-funded society, so that the necessary changes can be adopted in conjunction with their transition;
- talk to their advisors about other possible changes to their charter documents that may be merited;
- consider what third-party consents might be required to any contemplated bylaw amendments;
- consider the availability of their directors and members, as applicable, for meetings at which to approve the transition application and associated bylaw amendments and the appropriate timing for such meetings; and
- ensure they are in good standing with their corporate filings, as the BC Registrar has advised that societies must be up-to-date in their filings before their transition will be permitted.