By Michael A. Mann
How will new Not for Profit legislation in Ontario and passed federally affect you and the community or charity boards of directors that you may serve upon?
If you sit on the board of directors of a not-for-profit corporation (“NFPC”) or if you are otherwise involved with a NFPC, then you need to be aware of new laws which could change the way the organization operates. The Canada Not-for-Profit Corporations Act (“CNCA”) replaces a substantial part of the Canada Corporations Act (“CCA”) and is expected to be proclaimed into force in autumn, 2011. Ontario’s version, the Not-for-Profit Corporations Act (“ONCA”), will replace the Corporations Act (“OCA”) and is likely to be proclaimed into force late in 2012.
Generally speaking, the new Acts will provide NFPC members with greater protection and will, in many ways, treat the members in the same way that shareholders are dealt with under business corporation acts. For instance, when the new laws come into effect, both at the federal and the provincial level, the classes of membership must be specified in the Articles of Incorporation which create the NFPC. Similarly, even if a particular membership class is not entitled to voting rights, all member classes will be afforded the right to vote separately on “fundamental changes” to the NFPC (e.g. cancellation of membership classes and creating new membership classes with equal or superior rights).
Unlike the current legislation for NFPCs, the new acts contemplate a “two-tier” approach to corporations: those that meet certain criteria respecting their “public benefit” nature, and those that do not. Under the CNCA, if a NFPC’s revenues from public funded sources (i.e. from public donors, government agencies or from other “soliciting corporations”) exceed $10,000 in a financial year, the NFPC is deemed to be a “soliciting corporation”. Similarly, under the ONCA, if a NFPC is a charity or if its revenues from public fund sources exceed $10,000 in a financial year then it is deemed to be a “public benefit corporation”. In both cases it is likely that the reporting and accounting requirements to Canada Revenue Agency and to other various levels of government will be increased, the basic premise being that there is greater public interest in corporations which, broadly speaking, receive public funds.
While the above changes are just the “tip of the iceberg”, much will depend upon how your organization currently operates. If your NFPC already views and treats your members much like shareholders (i.e. with voting rights, entitlement to distribution of property upon dissolution, etc.) then you may encounter few problems when transitioning to the new acts; however, if your organization treats its members more like friends, volunteers or participants, then prepare for more substantial change.
In any event, it will be prudent to consider the governance model, including any necessary amendments to your Articles of Incorporation (or Letters Patent) and by-laws prior to this new legislation comes into effect; so you would be well-advised to seek appropriate legal counsel to assist.
Mike Mann is a senior partner at Lancaster Brooks & Welch LLP and may be reached at 905-641-1551