Proposed new Ontario Not-for-profit Corporations Act update

Proposed new Ontario Not-for-profit Corporations Act update

Lisa Asbreuk*
Posted February 24, 2014 Category: Businesses

We have received many inquiries about the proposed new Ontario Not-for-profit Corporations Act, 2010, S.O. 2010, c.15 (the “ONCA”) which received Royal Asset in the Ontario Legislature on October 25, 2010, and was originally planned to come into force at the beginning of 2013.    As you are now likely aware, 2013 came and went with considerable speculation about the coming into force date, however we continue to wait for the ONCA to be proclaimed into force.

Modernization of provincial law governing not-for-profit corporations has been ongoing for several years, and the proposed new legislation has been the subject of considerable analysis and discussion in that period.   The ONCA is a comprehensive overhaul of provincial not-for-profit legislation and adds a number of important new concepts, requirements, and member rights and remedies that the old (still in force) Ontario Corporations Act is silent on for non-share capital corporations, and which will also be new for certain non-share capital corporations incorporated under other special or private acts.

In March of 2013 the Minister indicated the Government of Ontario was delaying implementation of the ONCA to allow the not-for-profit sector to further prepare for the transition and stated that the ONCA would not come into force until at least January 1, 2014, however this date also passed without proclamation of the ONCA and information now available suggests at least a 6 month further delay into at least mid-2014 because other necessary legislative amendments have not yet been approved.   The proposed new ONCA regime requires technical amendments to over 80 other provincial statutes and the preparation of accompanying regulations for its implementation.   Bill 85 was introduced in the Legislature last summer to make the necessary technical amendments to other legislation, and Bill 85 also proposed some refinements to the ONCA including proposing delaying the effective date for certain new voting rights for non-voting members until the end of the proposed 3 year transition period.  (The new limited voting rights for non-voting members in the ONCA have been the subject of considerable uncertainty and some angst in the not-for-profit community since the concept was introduced.)   Bill 85 passed First Reading  on June 5, 2013 and was expected to be further debated this past fall and winter, however it has not yet advanced through Second and Third Reading and thus its expected coming into force date is unknown.

We do not know the expected coming into force date of the ONCA at this time, but current information suggests it will not be earlier than mid-2014.   Official updates from the Government of Ontario indicate that the new ONCA will not come into force until at least 6 months after the other necessary amendments have passage in the Legislature, which has not yet happened.

Once the new ONCA comes into force, generally speaking, existing Ontario not-for-profit corporations will have a 3 year transition period to make necessary or desirable changes to their incorporation and governance documents (letters patent, bylaws, etc.) to align with the ONCA.  The ONCA contains a transition provision, which Bill 85 expands to allow letters patent and bylaws etc. that conform to the old legislation but not the ONCA to remain valid and effective until the end of the 3 year transition period if not updated by the organization earlier.   This amendment to expand the key transition provision is in line with the Government of Ontario’s stated position that valid bylaws will remain effective until the end of the 3 year transition period, and is helpful in that it should address the legal uncertainty that had been worrying organizations with non-voting member structures that the ONCA could be interpreted such that new member rights would apply immediately once the ONCA comes into force.   This is one amendment that many in the sector are keeping an eye on.

Update on the Canada Not-for-Profit Corporations Act, now in force

The Canada Not-for-profit Corporations Act, S.C. 2009, c.23 (the “CNCA”) came into force on October 17, 2011 and contains a 3 year transition period ending  this October 17, 2014, during which period all federally incorporated not-for-profit corporations must continue from the old legislation to the new CNCA or face dissolution by Corporations Canada if they have not completed their continuance prior to the October 17, 2014 deadline.    The new CNCA represents a complete overhaul and modernization of federal not-for-profit corporations law and contains many new concepts, requirements, rights and remedies that are more like business corporations law.

Unlike the proposed provincial changes, federal not-for profit corporations are required to take action and cannot simply do nothing and be deemed to be continued.   All federal not-for-profit corporations must receive a Certificate of Continuance under the CNCA by October 17, 2014 or they will be dissolved.  Continuation to the new CNCA requires, at a minimum, preparation and filing of Articles of Continuance which will replace the organization’s old letters patent as the primary constating document, which must be approved by a special resolution of the members prior to filing.  Although bylaw amendments can subsequently be filed, most organizations will want to review their bylaws at the outset and submit updated bylaws at the time of continuance.

Many of our clients have already updated their necessary documents and have received their Certificate of Continuance to complete their transition at this point.   For some this process was relatively straightforward and they were able to largely use the model bylaws published by Corporations Canada.   For others, this process was lengthy because the organization was forced to consider fundamental issues regarding its governance, including its membership and composition of its board, and how to best place and utilize individuals that have been valuable contributors in the past but which may no longer fit in the same way within the membership and board requirements set out in the CNCA.

Any not-for-profit corporation subject to the CNCA which has not yet completed its transition should not delay any further in reviewing its documents, determining the necessary changes if any, and preparing and filing their Articles of Continuance.    For almost all organizations this process takes considerable time, particular because certain documents require membership approval (special resolution) and members may only be scheduled to meet annually.   Any bylaw amendments and the draft Articles of Continuance must be developed and drafted prior to notice and presentation to the membership for approval.   Furthermore, for registered charities any substantive changes to the objects (now the purposes) are recommended to be approved by the Charities Directorate at Canada Revenue Agency prior to filing the Articles of Continuance with Corporations Canada, a process which adds time.

Any existing organization incorporated under Part II of the Canada Corporations Act that has not obtained its Certificate of Continuance by October 18, 2014 should expect to receive notice in writing from Corporations Canada regarding pending dissolution.    Although we strongly recommend avoiding this eventuality, provisions are in place in the CNCA for reinstating dissolved corporations if necessary.

Navigating the transition

There are many guidance documents, tools, transition checklists, and bylaw templates now available online or through NFP networks or umbrella organizations that will help assist organizations through the necessary federal continuance to CNCA compliance and the pending provincial transition to ONCA compliance.  In our experience however, many NFP organizations have developed their own unique governance policies or habits over time that work well for them but that may not easily fit with (or be allowed under) the new legislation or the generic tools and templates being made available.   Furthermore, many charities have an additional set of concerns regarding ongoing conformity to charities law and Canada Revenue Agency requirements as they face the prospect of updating documents and structures.

If you require help navigating resources, reviewing your governance structure, understanding the impact of the changes on your organization, or updating your documents to comply, please do not hesitate to contact:

Lisa Asbreuk at [email protected]

Brian Gillingham at [email protected]

Eric Bennett at [email protected]

or any other lawyer you may be familiar with at Cunningham Swan  LLP

We also invite your thoughts and experiences for our collective knowledge base, and we invite you to watch for complimentary community legal seminars we offer on this and other topics from time to time.

Business Law Group, Lisa Asbreuk, Eric Bennett, Brian Gillingham

Lisa Asbreuk*
Posted February 24, 2014 Category: Businesses

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