On September 14, 2017, the Ontario government introduced Bill 154, the Cutting Unnecessary Red Tape Act ("Bill 154"). Bill 154 includes a number of changes to modernize the governance rules for Ontario-incorporated charities and not-for-profits (referred to in this Bulletin as "not-for-profits").
The Not-for-Profit Corporations Act (the "ONCA") (which is not yet in force) will be amended to address some outstanding technical and other issues in preparation for ONCA's eventual proclamation. Bill 154 will also modernize some of the more outdated requirements of the Ontario Corporations Act (the "OCA")—which currently governs Ontario not-for-profits—in the meantime.
The full text of Bill 154 can be found here.
Modernization of Existing Law
The OCA currently governs most Ontario not-for-profit corporations. The ONCA will, once in force, replace the OCA and modernize the regulatory framework for Ontario not-for-profits. However, although the ONCA received final Royal Assent in October 2010, its proclamation has been delayed several times.
Bill 154 is proposing some modernizations to the OCA in the meantime:
- Members meetings can be held by tele- or video-conference - A meeting of members would be permitted to be held by telephonic or electronic means, unless the by-laws of a corporation provide otherwise.
- Directors need not be members - Bill 154 would permit not-for-profits to provide, in their by-laws, that a person may be a director even if he or she is not a shareholder or member.
- Removal of directors by majority vote - Currently the OCA requires a two-thirds vote for the members to remove a director (other than an ex officio director) from office—this would be amended to a majority vote.
- Duties and standard of care - The amendments would set out the duties and standard of care of the directors and officers, which is to act honestly and in good faith with a view to the best interests of the corporation and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. These are existing duties under common law, but the changes would make them explicit in the OCA. A director or officer cannot be relieved of these duties (including the duty to act in accordance with the OCA) by a contract, by-law or other similar document.
- Relationship with other Acts and charities law - Bill 154 would explicitly clarify that charities laws and other laws that govern a not-for-profit will prevail if there is a conflict between the OCA and that other law.
- Corporate capacity - The amendments would clearly provide that not-for-profit corporations have the capacity, rights, powers and privileges of a natural person and a corporation's acts are valid even if the corporation has acted contrary to the letters patent (or other incorporating document), by-laws or the OCA.
- Option to opt out of audit requirements for small corporations - The proposed amendments would permit the members of corporations with annual revenues not exceeding $100,000 (or other prescribed amount) to forego an audit by an extraordinary resolution (approved by at least 80% of votes cast at a meeting of members, or consented to in writing by all members entitled to vote on the resolution).
- Pre-incorporation contracts - Bill 154 would allow corporations to adopt pre-incorporation contracts entered into on behalf of the corporation.
Proposed Amendments to the ONCA
In the fall of 2015, the Ministry committed to providing the sector with at least 24 months' notice before it proclaims the ONCA in force. The Ministry is upgrading its technology to support better access to online filing, etc. and has indicated it wants to have those upgrades in place before proclamation. This means that even once the amendments are passed, it will be some time before the ONCA is effective.
Bill 154 aims to address concerns raised about the ONCA.
Bill 154's key amendments to the ONCA are set out below:
- Delayed implementation of voting rights for non-voting members and class vote rights - The ONCA will extend certain voting rights to non-voting members and will also require class votes on certain corporate changes. As it was passed in 2010, the ONCA would have made these rights effective immediately when the ONCA came into force. Bill 154 would provide instead that these rights not be proclaimed in force until at least three years from the proclamation date of rest of the ONCA. The delay would give time to not-for-profits who have not already done so to evaluate and update their governance structures as needed.
- Corporations are allowed to limit use of proxies - Bill 154 proposes to restrict the right to vote by proxies by providing that: (i) this method of voting will only be available if the articles or by-laws permit proxies and (ii) the articles or by-laws may require that a proxyholder be a member. It would also remove the requirement for a form of proxy to be circulated with notice of members' meetings.
- Director consents must be in writing - Bill 154 would clarify that directors' consents to serve on the board must be in writing. The ONCA was unclear as to whether consents had to be in writing or could be given in another form. Bill 154 would also give the Government the power to require corporations to file consents with the Ministry in the future.
- Regulatory flexibility - Under Bill 154, the Minister would have the power to prescribe a different time period for circulating the approved financial statements to the members in regulation—currently this time period is 21 days. Similarly, Bill 154 would provide that the ONCA's current $10,000 threshold relating to the definition of a non-charitable public benefit corporation can be changed by regulation. The Government will have expanded powers to do other things through regulation or to set other requirements (e.g. to set required content of forms, requirements for the execution and methods of filing of documents, etc.).
- Clarity on transition process - Bill 154 would clarify the process for existing OCA not-for-profits to transition to the ONCA. The proposed updates would provide that existing letters patent, by-laws and special resolutions that were valid before the ONCA came into force, will continue to be valid for three years following proclamation. After that date, conflicting provisions will be deemed to be amended to the extent necessary to conform with all requirements of the ONCA. We had assumed this was the case, and a similar clarification had been previously put forward. Bill 154 would also require that provisions currently set out in by-laws or a special resolution— but which the ONCA requires to be in the articles— be so added before the end of the transition period. If this is not done, those provisions will be invalid—with an exception to this general rule for certain types of provisions (e.g. number of directors, member voting rights).
- Class vote to approve continuance for share-capital corporations with social objects - Bill 154 would amend the OCA to provide that share-capital corporations incorporated under that Act that have wholly or partly social objects (referred to as a "social company") will have 5 years to continue under the ONCA (as a non-share capital corporation), the Co-operative Corporations Act (as a co-operative) or the Business Corporations Act (the "OBCA") (as a share-capital corporation). If a social company has more than one class of shareholders, Bill 154 would add a requirement that the special resolution to authorize continuance be approved by each class of shareholders by a separate vote.
There are other updates across various corporate statutes, for example, to better account for electronic documentation and filing and to contemplate electronic signatures.
At this time, Bill 154 has passed First Reading so it is possible that further amendments will be made as the Bill progresses. We will keep you apprised as the Bill progresses.