In February, the Ottawa office held a lunch-and-learn seminar on what corporations need to know about transitioning under the new Canada Not-for-Profit Corporations Act (CNCA). Presentations were given by Virginia Schweitzer, Anna Tosto and Julia Kennedy. The seminar was well attended and it continues to be apparent that many not-for-profit corporations have not yet taken steps to continue under the CNCA.
The deadline of Oct. 17, 2014 is fast approaching for not-for-profit corporations in Canada incorporated under Part II of the Canada Corporations Act (CCA) to continue their corporations under the CNCA. Failure to continue can lead to dissolution.
Not-for-profits have been aware of the need to continue under the CNCA since the legislation came into force on Oct. 17, 2011, but many corporations are only now beginning to consider the steps in the process. Others may still not have caught on to the fact that action is needed – and soon.
We have included in this article a few of the items that were discussed at the seminar.
What’s New in the CNCA
Under the CCA, many of the powers, duties and defences of directors and officers of the corporation were not spelled out. Remedies for members of the corporation were often seen as insufficient.
Continuing the organization from one jurisdiction to another was not permitted. The CNCA now offers corporations the benefits of a more modern set of rules, in many instances similar to those governing for-profit corporations. Some of the noteworthy changes include:
- Incorporation as-of-right using articles, rather than discretionary Ministerial approval of Letters Patent.
- Directors are empowered to pass by-laws, subject to member approval, without governmental approval.
- Not-for-profits are now deemed to have the rights, powers and privileges of a natural person, instead of being restricted based on the authorized purposes of the corporation.
- Directors and officers have explicit duties of care and loyalty to the corporation and may be indemnified by the corporation.
- Ex-officio directors are no longer permitted; all directors have to be elected.
- Corporations are divided into different categories – soliciting, non-soliciting and religious. The category will determine other matters, including the level of financial review the corporation will be required to have, minimum board size and to whom assets can be distributed on dissolution:
• Soliciting corporations receive more than $10,000 in donations from public sources in a single year and are potentially subject to additional financial requirements, among other things.
• Religious corporations can be soliciting or non-soliciting and have special rules related to member remedies where decisions are based on a “tenet of faith.”
- Members at members’ meetings can now use proxies or other alternatives to in-person voting, such as electronic communication, and further can proceed by written resolution instead of a meeting.
- Members can now enter into Unanimous Member Agreements (UMA) to restrict, in whole or in part, the powers of the board of directors (non-soliciting corporations only).
- Members now have clear and more numerous rights, including certain class voting rights even if members are non-voting, as well as derivative actions, oppression remedies, and the ability to go to court for a variety of orders, including the winding up of the corporation.
Mechanics of continuing under CNCA
Continuance is not automatic. Not-for-profit corporations must take positive steps to bring their corporation into the new regime – before time runs out! Until the transition is made, the provisions of the CCA continue to apply.
Each federal not-for-profit corporation must file with the Corporations Canada the following by Oct. 17, 2014:
- Articles of Continuance
- Notice of Initial Registered Office and First Board of Directors
The new by-law of the corporation does not have to be filed to obtain a Certificate of Continuance. The CNCA requires that the new by-law be filed within 12 months after members have approved them. However, many corporations are seeking the approval of their members for both the articles of continuance and the new by-law at the same time and submitting them both to Corporations Canada.
Developing and implementing your governance review
Some corporations are taking this opportunity to do a governance review: reviewing their letters patent, existing bylaws, internal structures and membership classes to understand their current structure, and then looking to the future to understand and recognize the new requirements of the CNCA, as well as what the corporation’s directors, management and members want on a going forward basis.
This governance review is both an opportunity to address governance issues that may have been around for a while, and also a necessary step to produce CNCA-compliant articles and by-laws that your membership will approve. Governance review might involve some of the following processes and procedures:
- Gathering all your relevant documents: letters patent, by-laws, terms of reference for committees, board resolutions, list of directors, list of members, copy of CNCA and regulations.
- Setting a timeline. Work backwards from key dates such as the filing deadline of Oct. 17, 2014 to identify what time is available for consultation with your membership and approval processes.
- Establishing roles for staff, committees, the board and legal counsel. Each participant may not be needed at each point in time, but this will ensure a more streamlined process.
- Reviewing the current documents to determine the current structure on paper against what is done in practice, and how the corporation would like to function going forward. Key considerations include:
- What is the purpose of membership in your organization? Do you have the right classes of members? Do these classes have appropriate rights? Do your by-laws set out the conditions of membership?
- Is the size of your board appropriate to your organization? Is it functional?
- Does the manner of board elections conform to the CNCA? Does it suit your needs?
- Do the current by-laws reflect the right balance between board flexibility and member-imposed structure?
- Consider your findings and determine what degree of change is necessary and desired and possibly identify this in a simple policy statement. It is important to know whether you are working toward a wholesale restructuring of the corporation or taking a minimalist approach for purposes of compliance with the CNCA.
- Consult with your stakeholders. Ensure you know who they are and who you need approval from within your own corporate structure.
- Draft your articles and by-laws.
- Get approval of both articles and by-laws from your members and board of directors. This may require a special meeting of your members, or these additional items of business being included, with proper notice, at your regular annual meeting.
Active steps must be taken to continue under the CNCA. The process can be reasonably straightforward for many corporations, but it is important to start now in case there are unforeseen complexities, or your corporation would like to make more significant changes at the time of the continuance. The good news is that there is still time to get the process underway; consult with relevant stakeholders, seek legal advice, and finalize your articles and by-laws before the Oct. 17 deadline.