The Canada Not-For-Profit Act: A Primer

Noah Sarna & Darren StewartSeptember 30, 2009

Overview

1) Introduction

2) The Old Act: Features and Rationale of the CCA

3) The New Act: A. Key Differences btwn Old and New

B. Other Highlights of the New Act

C. Transitioning to the New Act

4) Conclusion

Disclaimer

THE FINE PRINT

This presentation contains general information and not legal advice

No solicitor-client relationship or privilege attaches to an exchange of info

For a specific problem, consult a lawyer

Introduction

Old Act is really, really old Seven overhaul bills died on order paper Canada Not-for-Profit Act received royal

assent on June 23, 2009 Points:

Modernize corporate governance rules Reduce administrative burden Part of process to remove CCA entirely

Introduction

“The not-for-profit sector has repeatedly said that the current statute no longer meets its needs. For example, under the current statute, the incorporation process is slow and cumbersome. There are no provisions for amalgamating two or more corporations. There are no provisions for modern communications technologies. Financial accountability and transparency is inadequate. Directors do not have adequate defences against unwarranted liabilities. Members have few rights, and the list goes on.”

- Diane Ablonczy, Minister of State (Small Business and Tourism)

Introduction

“I certainly have a concern that [Bill C-4] in its current form will make it very difficult to attract new directors and volunteers in the not-for-profit sector. Anybody faced with this massive regulation would say, “I came here to do good work. I came here to make a contribution to my community. I came here to make good decisions. I came here to help people,” and all of a sudden that person is faced with having to deal with a massive bureaucratic regime, where one size fits all right across the country.”

- Libby Davies, MP for Vancouver East, NDP

Introduction

■ Who does it concern?– Approximately 19,000 federal NFPs– Prospective federal NFPs– Provincial/territorial NFPs, which have

option to adopt new regime

The Old Act

■ Goal: – to govern incorporation of companies

without share capital for the purpose of carrying on prescribed objects in more than one province (without gain to its members)

■ Charitable, social, professional and fraternal organizations

The Old Act

■ Incorporation: – must be granted, not taken as of right, by

Corporations Canada issuing letters patent with approval of letters patent attached

– must be at least three individual incorporators

– must involve three individual volunteers as directors

■ Not the same as obtaining charitable status under the Income Tax Act

The Old Act

■ Components of NFP corporation: – Directors, officers, members (no

shareholders)– Members must meet annually to review

financial statements, auditor’s report and appoint auditor for coming year; have discretion over certain decisions (e.g. by-law amendments)

The Old Act

■ Good standing requires:– One general meeting every 15 months to

review financial statements, auditor’s report, appoint auditor, elect directors (if necessary)

– Annual financial statements, with independent auditor

– File annual summary with Corporations Canada, with fee

– Record-keeping

The Old Act

■ Dissolution:– By choice– By inactivity, either due to lack of bona fide

operation or inactivity for more than three years

The New Act

B. Other Highlights of the New Act– Theme: modernized, efficient, predictable – In line with the Canadian Business

Corporations Act– Built in flexibility based on the size of NFP

corporation and how much public funding it receives

• For example, reporting requirements relaxed, appointment of public accountants for audit not required for smaller NFPs.

The New Act

■ Incorporation as a right– No more ministerial review/crown

prerogative when incorporating• Subject to same name clearance process as a

regular CBCA corporation• Articles of incorporation closely parallel CBCA

incorporation

– E-filing, so quick turnaround• Used to take a few weeks to incorporate

The New Act

■ Capacity and powers of the non-profit– Personality, like a corporation

• enabling NFP corporations to engage in any commercial or non-commercial activities, subject to voluntary restrictions contained in the articles

– Does not require passage of bylaws in order to confer any power on NFP corporation or its directors

• Again, parallel CBCA• Some restrictions: for example Charities, under the Tax

Act, need to adopt voluntary restrictions on activities

The New Act

■ Two different regimes■ Soliciting/non-soliciting corporations

– Idea: corporations that receive public funds should be subject to tighter regulations

– Minimum governance standards imposed on soliciting corporations

• Minimum of 3 board members for soliciting corporations, filing of annual financial statements v. no filing requirement for non-soliciting corporations

– Threshold: aggregate receipts from public sources over past three years >$10,000

The New Act

■ Governance/members– Ability to pass written resolutions in lieu of holding

a meeting – Members can bring oppression action/derivative

action – Members now have the power to set the number

of directors/remove directors by ordinary resolution

– Much easier to pass bylaws under new regime• residual power of directors

– Fundamental changes to the corporation– handled in the same way as CBCA

The New Act

Directors duties/liabilities– Designed to bring NFP directors in line with those

of for-profit directors – Replaces common law duties of care with

statutory duties of care identical to those in CBCA– The Act facilitates the rights of indemnification,

the advance of defence costs and permits an NFP corporation to purchase directors and officers liability insurance

– Adopts the same conflict of interest regime as the CBCA.

The New Act

Office of “Director of Corporations” established

• Will be empowered to issue incorporation, amalgamation or dissolution certificates

• Vested with discretion regarding compliance with many of these new rules

• Same powers as the minister had under the old regime

The New Act

C. Transitioning to the New Act Compliance Process:

Once New Act in force, NFP will have 3 years to comply, with no fee, by:

Filing articles of continuance with Corporations Canada

Amending corporate by-laws, as needed

If successful, NFP will receive certificate of continuance to replace letters patent

The New Act

■ Compliance Process CONT

If unsuccessful, NFP may be subject to dissolution by the Director

Thus, NFP has the time and incentive to comply

Conclusion

■ Events on the horizon:– Ontario is planning to update corporate

legislation– Coming into force of New Act: best guess is

end of 2010