Ontario’s Bill 65, the Not-For-Profit Corporations Act, 2010 (the “New Act” or the “Bill”) was recently introduced, less than one year after the Canada Not-For-Profit Corporations Act, 2009 (the “Federal Act”) was given Royal Assent. A summary of the Canada Not-for-Profit Corporations Act was featured in our September 1, 2009 issue, of Taxation Law @ Gowlings - Volume 9, Issue 27. Bill 65 received second reading on May 17, 2010 and has been referred to a Standing Committee for review. The New Act is designed to apply to most of the corporations that are governed by the Ontario Corporations Act (the “Current Act”).

In its press release1, the Ministry of Consumer Services indicated that the legislation’s mandate is four-fold:

  1. Enhance corporate governance and accountability;
  2. Simplify the incorporation process;
  3. Give more rights to members; and
  4. Better protect directors and officers from personal liability.

The Explanatory Notes to Bill 65, which provide a good summary of the Bill’s provision, can be downloaded at:

http://www.ontla.on.ca/bills/bills-files/39_Parliament/Session2/b065.pdf.

Gowlings has prepared a lengthier and more detailed analysis of the New Act which can be found at:

http://www.gowlings.com/KnowledgeCentre/enewsletters/govbrief/HtmFiles/20100624_12392.en.html

Summary

The New Act is a comprehensive update of corporate law for not-for-profit corporations in the Province of Ontario. It implements an as of right and speedy incorporation process, replacing the current system of letters patent. The New Act also introduces provisions which provide a reasonable balance between efficient governance by the directors of the corporation, and their protection from personal liability. One way it does that is by explicitly setting out the standard of care required of directors and officers, while clearly making available a due diligence defence.

Some of the developments in good corporate governance which are already being implemented by forward thinking organizations are incorporated into the New Act. For example, the New Act recognizes the prevalence of audit committees, and regulates the composition and responsibilities of audit committees where they exist, but does not make them mandatory.

The New Act also provides members with some significant rights and remedies. Not only are members given the right to bring actions on behalf of the corporation (derivative actions), and seek court ordered investigations, even the rights of non-voting members are augmented by providing them with votes when certain organizational changes are proposed.

Of potentially greater impact to the day to day operation of corporations, notice provisions, quorum requirements, electronic meetings, and other matters, are either simplified, made more liberal or clarified. Overall, the New Act provides a great deal more guidance and clarity for corporations without share capital about various corporate matters relative to the Current Act.

Categories of Not-For-Profit Corporations

The New Act introduces distinctions between: (i) charitable and non-charitable corporations; (ii) public benefit and non-public benefit corporations; and (iii) religious corporations and other charitable corporations. These categories are important in a number of ways, including differing rules for the audits and review engagements or their waiver.

The New Act further segregates the types of corporations by providing varied transition provisions for corporations with objects of a social nature.

Transition

Corporations which are continued under this New Act will be required to bring their Letters Patent, Supplementary Letters Patent, by-laws, and any special resolutions into conformity with the New Act, and may do so by filing Articles of Amendment, or by amending their by-laws, once the New Act is in force. The New Act specifically provides that any provision that is not amended to conform with the New Act, is deemed after three years to be amended to the extent necessary to conform. In essence, the New Act’s provisions will always supersede a corporation’s existing Letters Patent, Supplementary Letters Patent or by-laws. Relying upon this provision could be highly problematic. Doing so would leave potentially large inconsistencies between the corporation’s Letters Patent and by-laws - documents the directors, members and staff are most likely to go to for guidance or to work with - and the requirements of the New Act. It is likely that actions which contravene the New Act will be taken because they appear to comply with the existing corporate documents. Furthermore, the New Act imposes new requirements, which are likely to go unnoticed and unfulfilled if they are not incorporated into the documents which are supposed to govern a corporation’s activities.

The New Act specifically provides for the ability of a corporation to restate its articles so that the corporation’s Letters Patent, Supplementary Letters Patent and by-laws are clearly in compliance with the New Act. A corporation may not restate its articles unless those articles are in complete conformity with the Act, necessitating the amendment of its articles. It is recommended that all corporations amend their letters patent, supplementary letters patent and by-laws to conform with the New Act, so as not to unintentionally create confusion and questions about whether the letters patent, supplementary letters patent and by-laws can be relied upon.