In many franchise systems, franchisees have developed franchisee associations which serve as an independent forum through which franchisees have the ability to make recommendations to the franchisor with respect to matters of operation, advertising, supplies and suppliers, rebates, and system improvements. If your franchisee association is organized as a federal or provincial not-for-profit corporation (sometimes referred to as a “corporation without share capital”), you will have to comply with certain requirements set out in the new Canada Not-for-Profit Corporations Act (the “CNCA”) or the Ontario Not-for-Profit Corporations Act, 2010 (the “ONCA”).

The CNCA came into force on October 17, 2011 and the ONCA is scheduled to come into force on January 1, 2013. These new pieces of legislation bring with them a fresh framework for the governance and incorporation of associations and other not-for-profit organizations and charitable foundations.

The new legislation provides a comprehensive set of requirements that, among other things, replaces the need for detailed by-laws, and leaves room for a corporation to either accept certain default rules set out in the legislation, or tailor rules to suit its own practices. Overall, the new legislation attempts to modernize the corporate governance standards applicable to federal and provincial not-for-profit corporations and is intended to increase transparency, accountability, efficiency, and fairness.

Some of the key highlights of the new legislation include:

  • simplifying the incorporation process;
  • enhancing corporate governance and accountability by providing a statutory duty of care for directors; and, at the same time, providing specific protection from director liability;
  • enhancing member democracy by expanding the rights of members and the remedies available to members to ensure directors are acting in the best interests of the corporation;
  • permitting not-for-profit corporations to engage in commercial activities where the revenues are reinvested in the corporation’s not-for-profit purposes; and
  • imposing more stringent financial review, reporting, and record keeping requirements.

Federally incorporated franchisee associations will have until October 17, 2014 to amend their Letters Patent, Supplementary Letters Patent, and by-laws to conform with the new requirements of the CNCA and to apply for a Certificate of Continuance. If a Certificate of Continuance is not applied for within this time frame, the federal government will dissolve your corporation; in other words, your franchisee association will cease to exist.

In contrast to the CNCA, the ONCA will immediately apply to all existing provincially incorporated franchisee associations on January 1, 2013, without any requirement for action on their part. Such franchisee associations will have up to three years to file Articles of Amendment to amend their Letters Patent, Supplementary Letters Patent, and by-laws to bring them into conformity with the ONCA. If no such action is taken after three years, the necessary amendments will be deemed to have been made.

A franchisee association can be a vital part of the success of a franchise system. In light of the new not-for-profit law, franchisee associations will be well served to discuss with counsel the impact of these laws on their association. Such discussions may also be relevant to franchisors that administer their adverting funds or charitable foundations through not-for-profit corporations.

Whether you’re a franchisee association or a franchisor with a not-for-profit administered advertising fund or charitable foundation, we can assist you in making the necessary changes to your corporation to ensure its continuance and compliance under the new legislation.