The new Canada Not-for-profit Corporations Act ("NFP Act"), which is scheduled to come into force in 2011, replaces Part II of the Canada Corporations Act ("CCA"). The new legislation modernizes the corporate governance of not-for-profit corporations ("NFPs"), by promoting accountability, transparency and efficiency. It will provide:
- incorporation by right;
- clear rules to govern internal affairs;
- clear rules for payments to directors, employees and members;
- clear duties and responsibilities of directors, and
- more flexibility to make fundamental changes such as amalgamations, continuance, re-organizations (which were previously not permitted).
Existing NFPs will not be subject to the new law until Articles of Continuance are applied for and issued by Industry Canada. NFPs will have 3 years from the date the new NFP Act comes into force and if not continued within the 3 year period, will be subject to dissolution.
NFPs now incorporated under the CCA should currently be in the process of:
- reviewing their current Letters Patent and by-laws;
- preparing Articles of Continuance;
- creating new by-laws and streamlining them to focus on specific day-to-day needs (i.e., notice of meetings, quorum, electronic communication, and so on) (note: conditions for membership and notice of members' meetings are mandatory);
- obtaining Members' approval and preparing resolutions (which usually need approval by 2/3 of members); and
- preparing documents to file with Industry Canada to give effect to the forthcoming changes.
To facilitate the change, Industry Canada will not charge initial filing fees related to transitioning from the CCA to the NFP Act. That said, Industry Canada will no longer be reviewing by-laws and amendments either.
Specific issues to consider as part of the transitioning process from the CCA to the NFP Act include:
- change of name;
- location of registered office;
- minimum and maximum number of directors (note: 3 are required if the continuing NFP is a soliciting corporation);
- election/removal of directors (note: ex-officio directors are no longer permitted but workaround solutions are possible);
- Directors' meetings, quorum, voting and notice of meetings;
- election of officers and specification of duties;
- statement of NFP's purpose;
- restrictions of NFP activities (which will be required for registered charities);
- membership classes (regional or other) and if there is more than one class of members the voting rights attached to each class;
- conditions of membership, quorum, absentee voting and notice of meetings;
- discipline of members;
- statement regarding the distribution of property remaining upon liquidation of the NFP's assets, and
- financial review requirements.
soliciting and non-soliciting corporations
There will be 2 categories of NFPs under the new legislation: soliciting and non-soliciting corporations. A soliciting corporation is one that receives public money in excess of $10,000 in a financial year. Once defined as a soliciting corporation, then that status lasts for 3 years; if there is a subsequent financial year over the threshold, the 3 year period restarts. There are effectively 5 requirements for soliciting corporations:
- a minimum of 3 directors, 2 of whom are not officers or employees (a non-soliciting corporation may have 1 director);
- it must file a copy of its financial statements (and public accountant's report, if any) to the Director at Corporations Canada (a non-soliciting corporation is not required to make this filing but the Director could request such);
- upon dissolution, assets must go to a "qualified donee" as set out in s 248(1) of the Income Tax Act;
- members cannot have a unanimous member agreement, and
- the NFP must adhere to more stringent financial review rules.
Except as follows, every NFP under the new law must have a qualified public accountant (i.e., CA/CGA/CMA with a provincial licence (where required). Soliciting corporations with $50,000 or less in gross annual revenue or non-soliciting corporations with $1,000,000 or less in gross annual revenues, can opt not to appoint a public accountant if those members entitled to vote at the annual meeting unanimously consent.