All not-for-profit corporations (NFPs) incorporated under the now-repealed Part II of the Canada Corporations Act must apply to transition to the Canada Not-for-Profit Corporations Act (the “CNCA”) prior to October 17, 2014, failing which they may be dissolved by Corporations Canada. Many not-for-profit corporations (NFPs) have still yet to transition!
While dissolution is not automatic (as Corporations Canada will first give notice to the affected corporations), we strongly recommend that all federally-incorporated NFPs start their transition process without delay. This process includes preparing Articles of Continuance and new by-laws which are compliant with the CNCA and having them approved by the directors and members of NFP (see below).
Furthermore, any registered charities wishing to change their purposes as part of the transition process should obtain CRA’s prior approval of this change before filing their transition documents. Be aware that this approval process is currently taking between 2 weeks to 6 months, depending on the complexity of the proposed changes.
By way of background, the CNCA attempts to modernize the corporate governance standards applicable to federal NFPs and to make the not-for-profit sector more accountable to the public. It makes significant changes to the way in which federal NFPs are regulated. Some of the key elements of this new framework are:
- Modernized Governance Tools. Federally-incorporated NFPs will operate under a modernized governance regime, such as having the ability to participate in meetings by electronic means.
- Soliciting Corporations. The CNCA classifies federal NFPs as either “soliciting” or “non-soliciting”, depending on the amount and source of funding they receive in a given financial year, with “soliciting corporations” being subjected to more stringent regulation;
- Financial Review. The CNCA imposes more stringent financial review requirements on federal NFPs, including the appointment of an auditor and the need to conduct an annual financial review. The actual requirements imposed (and whether an NFP is exempted from any requirement) will vary depending on the level of funds received and whether a corporation is “soliciting”.
- Member remedies. New remedies are available for members of federal NFPs, including the right to file a derivative action in the name of the NFP, to obtain compliance or restraining orders against the NFP and to access the oppression remedy under certain circumstance for actions that unfairly prejudice or disregard a member’s interests.
In order to comply with the CNCA, federal NFPs will likely need to make a number of changes to their governing documents. In connection with the transition to the CNCA, we anticipate that NFPs will need to:
- review their current governing documents to determine amendments required to comply with the CNCA (and any other amendments which they would like to make at this time);
- prepare Articles of Continuance and new By-laws that conform with the CNCA (the latter of which need to be filed with Industry Canada within 12 months of filing the Articles of Continuance);
- obtain director and member approval of the transition documents;
- if a registered charity and changing its purposes, obtain CRA’s approval of such revised purpose; and
- file the Articles of Continuance and related documents by October 17, 2014.