One of the more significant and potentially challenging aspects of the Canada Not-for-Profit Corporations Act is its granting of the voting rights to members who, under the current regime, would not have the right to vote on corporate decisions. The new Act, which received Royal Assent on June 23, 2009, and which is expected to come into force within the next 12-18 months, will significantly constrain the ability of non-profit corporations to have non-voting members. It is thus important that federally incorporated charities and nonprofit organizations review their membership structure and take action before they are subject to the new Act.
Under the new Act, members who do not otherwise have a right to vote will have the right to vote on certain fundamental corporate changes. In some cases, the non-voting members will have a class vote, while in others they will vote as part of the total membership of the corporation. Where the non-voting members have a class vote, they can as a group veto any action.
Non-voting members will be eligible to vote as part of the total membership on the following corporate matters that require the support of two-thirds of all of the members in order to pass:
- amalgamation with another corporation;
- continuance of the corporation into another jurisdiction; and
- the sale of substantially all of the corporation’s assets.
Non-voting members will have a class vote on:
- amendments to the articles or by-laws which would alter the rights of their class of members, or effect an exchange of one class of members into their class;
- amalgamation if it alters the rights of their membership class, or allows for an exchange of membership classes;
- the sale of substantially all of the corporation’s assets, if the sale would affect their membership class differently from other membership classes; and
- Proposal to dissolve, or to liquidate and dissolve, the corporation.
Non-voting members will have the right to request that a public accountant attend a members’ meeting, at the corporation’s expense, to answer questions related to their duties. A non-voting member will also meet the definition of “complainant” under the new Act for the purposes of certain corporate remedies, thereby enabling non-voting members to apply for an oppression remedy or to apply for leave to commence a derivative action in the name of the corporation.
The new Act provides some scope to limit non-voting members’ voting rights in respect of proposed alterations to the articles or by-laws in the corporation’s articles. However, the right of non-voting members to vote on amalgamation, continuance, dissolution, or a sale of substantially all corporate assets cannot be limited.
Corporations that want do not want their non-voting members to obtain these rights will want to eliminate their non-voting members under the current Act. These non-voting members may be renamed “supporters” and the by-laws of the corporation can provide that these individuals shall not be members. The rights of these supporters could be then specified in the by-law (for example, the supporter may have the right to receive annual reports or to attend “supporters’ meetings”). The concept of supporters is discussed in an article by Arthur Drache, in the November 2009 Miller Thomson Charity and Non-For-Profit Newsletter. This approach should eliminate the non-voting member rights, unless a court should find that such “supporters” are in fact members under a different name. It should also be noted that such “supporters” would likely still qualify as “complainants” for the purposes of corporate remedies.
Thus, the new Act will significantly alter the decision-making structure of federal non-profit corporations that currently have classes of non-voting members. Once the new Act comes into force, current federal non-profit corporations will be required to continue under the new Act within three years. Once a corporation has continued under the new Act, it will not be able to alter its membership structure without approval of its current nonvoting members. Thus, directors of such corporations should decide now whether this new regime makes sense for their organizations and make alterations before the corporation continues under the new Act.