Transcript Canada Not-for-Profit Corporations Act, 2009

What You Should Know
Presenter: Sheldon L. Wood B.A., LL.B.
General Counsel for Teen Challenge Inc. (Canada)
Canada Not-For-Profit Corporations Act, 2009
(‘CNCA’)
- proclaimed in force as of October 17, 2011
Ontario Not-For-Profit Corporations Act, 2010
(‘ONCA’)
- to be proclaimed in force in late 2012 (?)
- CNCA replaces the ‘Canada Corporations
Act’ (the ‘CCA’) which had not been
significantly changed since enactment in
1917 (complicated legislation geared towards
‘for profit’ corporations)
- CNCA simplifies the incorporation process
(incorporation ‘as of right’ without need for a
substantive review of Application and
corporate By-Laws)
- Provides for electronic registration of
Application for Incorporation (presently not
available due to need to pass regulations and
set up system)
- Encourage ability of non profits to engage
in (limited) commercial activities to support
their non profit activities (must still keep in
mind common law limitations)
- Encourage professionals to participate as
Directors on non profit boards (‘objective’
liability standard replaces previous
‘subjective’ standard)
- Directors now able to rely on professional
advice, opinions and reports in making
decisions (without having to make further
inquiries beyond reasonable due diligence)
- CNCA lessens the administrative burden
and associated costs for smaller not-forprofit corporations (particularly regarding
audit requirements)
- CNCA attempts to be a plain language,
workable statute (it avoids previous overlap
of sections with for-profit corporations as in
the CCA)
1. Comply and continue, or be dissolved
- existing Letter Patent and by-laws need to be
reviewed to ensure compliance with CNCA,
otherwise there will be ‘deemed compliance’
with mandatory default provisions of the Act;
- after corporate by-laws are revised to meet
needs of the corporation (in accordance with
allowable optional provisions under the CNCA),
Articles of Continuance (Form 4031) need to be
applied for (prior to October 17, 2014)
2. Avoid Liability
There are substantive changes under the CNCA
that Directors and Officers need to be aware of.
Not knowing and meeting CNCA requirements in
governance matters could amount to a failure to
meet the legal duty of care, leading to personal
liability.
CNCA s.148 states “every Director and Officer...
must exercise the care, diligence and skill that a
reasonably prudent person would exercise”.
Reasonable to assume this includes having a
familiarization with legislation governing the
corporation?
3. Increased Members Rights and Powers
- CNCA expands and clarifies rights and
remedies available to members. Members
rights are strengthened and potential ability
to control (some) actions of corporation are
increased.
4. Meet and deal with new audit requirements
- define ‘soliciting’ and ‘non-soliciting’
corporations (differing revenue limits before
mandatory audit)
1. Increased ability to engage in commercial
activity (truth or fiction?)
- limited restrictions on commercial activity
provided they are set out in Articles of
Incorporation (cannot be banking, insurance or
trust company activities);
- commercial activities must not violate common
law in that they must be related to the corporate
objects, they cannot be the primary activity of the
corporation, and revenues must be reinvested in
support of the not-for-profit purpose.
2. By-Laws need not be filed with Application
for Incorporation, but can be submitted
within 12 months following membership
approval.
3. By-Laws no longer subject to ministerial
approval. However, where they do not comply
with the CNCA, there will be deemed
compliance with the mandatory default
provisions.
4. Membership classes and voting rights must
be set out in Articles. Conditions for
membership, member discipline and member
meeting notice requirements must be set out
in by-laws.
5. Separate member classes must approve
corporate changes affecting that member
class, as well as certain ‘fundamental’
changes to the corporation (even if otherwise
a non-voting member).
6. ‘Ex Officio’ directors no longer permitted
(work around is to set up a limited
membership class wherein a Director can only
be elected/replaced by that member class).
7. ‘Unanimous Membership Agreement’ can
allow members to control certain corporate
activities usually reserved to the Board.
The CNCA contains mandatory and optional
provisions. Failure to set out optional
provisions in by-laws will cause a default to
the mandatory provisions in the Act.
Examples of ‘Optional Provisions’ are:
- unlimited borrowing powers to Directors
without further member approval
- limited participation at members meetings by
electronic means
- permitting proxy voting and setting form of
proxy
- setting quorum for members meetings at
more than bare majority
- allowing for specific members rights to
continue after membership terminated
- allowing for insurance and indemnity for
Directors, Officers, employees, members etc.
- establishing process for member discipline
- requiring that Directors must also be
members
- Directors need not be members unless bylaws say otherwise
- non-soliciting corporations need only have
one (1) Director
- soliciting corporations require at least three
(3) Directors, two of whom are not Officers or
employees of the corporation
- staggered terms of office for Directors are
permitted
- Directors may be removed by ordinary resolution
(majority vote) of members (except for Directors
appointed by a specific membership class)
- Subject to the Articles, By-Laws or a Unanimous
Membership Agreement, the Board appoints
Officers and specifies their duties
- Directors jointly and severally liable for up to six
(6) months wages in dissolution (where recovery
is not provided for by the corporation) or in
bankruptcy proceedings
- two-thirds (2/3) members approval required
for Articles of Continuance and CNCA
compliant by-law
- member classes and voting rights attached to
each must be set out in Articles
- only specific member class can vote for
changes affecting that class
- member classes vote separately on
‘fundamental changes’ (including ‘nonvoting’ members). Each class is allowed at
least one vote even if by-laws say otherwise
- ‘fundamental changes’ include
amalgamation, continuance in another
jurisdiction, extraordinary
sale/leases/exchange of property, change of
corporate name, amending corporate
activities, creation of new membership class,
(continued on next slide)
(‘fundamental changes’ continued)
- changing a condition of membership or a
discipline process, increasing or decreasing
the number (or minimum and maximum
number of) Directors, changing provisions for
the distribution of property remaining on
liquidation after discharge of corporate
liabilities etc.
- Articles and/or by-laws must set out
circumstances and manner in which discipline
can be exercised (no arbitrary termination or
suspension of membership)
- rules of natural justice apply to member
discipline (must be done in ‘good faith’ and
be conducted in a ‘fair and reasonable
manner’). Member has a right to proceed in
court if they feel aggrieved by discipline
- Members have right to access corporate
records, financial statements and members
lists (members list access restricted to use for
promotion of member participation – not for
business or personal reasons)
- members may enter into a ‘Unanimous
Members Agreement’ (non-soliciting
corporations only) to restrict Board powers in
managing affairs of the corporation
- member(s) may bring derivative action in
court on behalf of corporation where they feel
Directors have not taken legal action to
protect corporate interests
- member(s) may seek oppression remedy
- neither a derivative action or oppression
remedy is available for ‘faith based’
(religious/theological) decisions of a
corporation
- any member entitled to attend a meeting may
submit a proposal at an annual members
meeting, to be discussed and voted upon.
The proposal shall be included in the notice
of the meeting circulated to the members.
The proposal must relate in a significant way
to the activities and affairs of the corporation.
- five per cent (5%) of voting members may
requisition a meeting (less if by-laws allow)
Soliciting and Non-Soliciting Corporations:
- financial statements must be made available
to members, Directors, Officers and public
accountants
Soliciting Corporations:
- more than $10,000 received from one or
more public (non-member et al) donors or by
way of grant or financial assistance from a
government or government agency
- financial statements must be publicly
available
Non-Soliciting Corporation
- more than $10,000 received from one or
more of a member, Director, Officer,
employee or the spouse of such (or the child,
parent, sibling, grandparent, uncle, aunt,
nephew, niece of such – or their spouse)
- financial statements do not need to be made
publicly available
“Soliciting Corporation”
- status is determined as of the financial year
end
- status starts or ceases as of the date of the
Annual Members Meeting, and then continues
for three (3) years. If there is another
‘financial year’ over the threshold of $10,000
from public/government sources during the
three years, the status period re-starts
Soliciting Corporations:
- revenue less than $50,000 allows members
to unanimously resolve not to appoint a
public accountant
- revenue exceeds $50k but is less than $250k
requires an audit unless members pass a
special resolution (two-thirds) to undertake a
review engagement
- more than $250k requires a mandatory audit
Non-Soliciting Corporations:
- revenues less than $1 million allows
members to unanimously resolve not to
appoint a public accountant
- revenues more than $1 million makes an
audit mandatory
Sheldon L. Wood B.A., LL.B.
General Counsel
Teen Challenge Inc. (Canada)
Lambeth Box 777
London, Ontario N6P 1R6
1-888-417-7777
[email protected]