In 2010, Ontario attempted to modernize the governance of not-for-profit corporations (NFPs) incorporated in Ontario when it passed the Not-for-profit Corporations Act (Ontario) (the “ONCA”). This followed similar legislation at the federal level in the Canada Not-for-Profit Act (CNCA). Both the ONCA and CNCA share the objective of giving NFPs governance tools similar to for-profit corporations, including increased duties for directors, more rights to members and streamlined rules for meetings, notice and general governance. However, unlike the federal statute, which federally-incorporated NFPs are required to continue under by October 17th this year, Ontario has yet to proclaim the ONCA into force and so NFPs in Ontario are still governed by the old Ontario Corporations Act.
The Ontario government introduced Bill 85 last year to amend other legislation consequential to the enactment of the ONCA and provide additional regulatory detail. Bill 85 contemplates proclamation for the ONCA within six months of its passage and then a three-year transition period to the new framework. Yet despite tacit support for the bill at first reading in June, the minority governing Liberals have not yet re-introduced the Bill for second or third reading and this may be unlikely to happen before the 2014 provincial budget and election that could soon follow it (Ontario has a minority government so an election would be triggered if the budget is not passed with the support of one of the opposition parties). Therefore, nearly four years after the ONCA was passed into law it still remains unclear when it will actually be proclaimed and operational for NFPs in Ontario.
For a more detail background on the specific provisions in the ONCA, please see here.
This holding pattern for the ONCA has created a frustrating situation for NFPs in Ontario as many are prepared to transition to the new regime but are unable to at this time. Given this situation, provincially-incorporated NFPs are still encouraged to seek legal advice to ensure any revisions they make now to their articles or bylaws are ONCA compliant in order to save time and cost in the future when the ONCA is finally proclaimed. Ontario-incorporated NFPs may also wish to consider making any changes to their membership (i.e. voting rights) before the ONCA is proclaimed, as doing so after will require a more fulsome membership vote rather than the current right to simply file amended articles or bylaws.
In addition, federally-incorporated NFPs may wish to consider continuing under the old Ontario Corporations Act (the precursor to the ONCA) with ONCA-compliant articles if there is a particular CNCA provision that they may have difficultly complying with. While the CNCA and ONCA are very similar, there are some key differences that all NFPs should consider:
- Deadline to comply: NFPs have until Oct 14, 2014 to continue under the CNCA but no deadline has been set under the ONCA other than 3 years from the date it is eventually proclaimed into force;
- Notice for Annual Meeting: The CNCA lists more stringent rules for the form of notice to be provided while the ONCA defers to the NFP’s bylaws for form (both include the same minimum time required);
- Ex-officio Directors: The CNCA does not permit ex-officio directors; all directors must be elected, unlike the ONCA.
- Removing members: The ONCA has a slightly higher procedural threshold to remove a member, which accords the members a right to notice and to be heard before they can be removed by directors.
- Directors’ Duty and Liability: Directors have slightly better protection under the ONCA, as its reasonable diligence defence specifically includes good faith reliance on professional advisors, financial statements, and reasonable reliance on employee reports or advice; and
- Oppression Remedy: The CNCA allows members to bring an action against the NFP for action that is oppressive or unfairly prejudicial to or unfairly disregards the interests of any member; there is no oppression remedy under the ONCA.
For a more fulsome analysis on the differences and similarities between both legislation please see this chart. Regardless of federal or Ontario incorporation, 2014 will be a big transition year for the governance of NFPs, who are encouraged to work with their counsel at Davis to ensure this transition is as smooth as possible.