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Bylaws: who needs ’em

publication date: Sep 5, 2012
 | 
author/source: Adam Aptowitzer
The changeover of federal corporations to the Canada Not-for-Profit Corporations Act raises interesting questions about the bylaws that a corporation may have used since its inception. (It bears mentioning that the same questions arise in the context of Ontario non-share capital corporations). Adam Aptowitzer photo

We have written before that corporations continuing under the CNCA should review their bylaws as part of the process. However, the general presumption that a corporation should have a full set of bylaws may itself need to be reconsidered.

CNCA overlaps bylaw territory

The CNCA contains within it the broad outlines of corporate bylaws. For federally incorporated nonprofits, where the corporate bylaws are silent, the scheme in the act will speak. In fact, with the exception of provisions for the admittance of members and notice, the corporate bylaws can otherwise be silent.

In general, we have been advising against including only the minimum number of provisions, as the system in the CNCA is rarely completely satisfactory. Nevertheless, just because it is prudent for corporate bylaws to deal with certain situations does not mean that it is equally prudent for the bylaws to deal with every situation.

Member votes sometimes difficult

Unlike the old act, which required approval of bylaws by Industry Canada, the new act simply requires approval by the members. This, however, can be easier said than done. In addition to the typical notice requirements and raised emotions that come with changes to fundamental documents, bylaw amendments can be subject to vetoes by different membership classes and special majorities.

While not every element of the bylaws may be critical to the practical operation of the corporation, they are all subject to the same amending formula if contained within the bylaws. For religious organizations it may be inappropriate to have the membership vote on a change which is required by a religious functionary.

Shadow bylaws apart from official ones

Consequently, corporations may consider creating a second set of "shadow bylaws" to deal with issues that are important to the corporation but do not necessarily need to be in the official bylaws. Examples may include the corporate mission, theological directives or officer positions. All of these may be subject to occasional change without resorting to the bylaw amending formula or a meeting of the members.

These rules can be given any appropriate title and can contain any provisions decided by the members of the corporation. Similarly, the amending formula can be one decided upon by the membership. The document will not replace the bylaws but rather provide enhanced rules in those areas chosen by the membership. That said, it is important that these rules do not tread into areas which are governed by the bylaws or the act.

There are other drawbacks as well to a secondary set of bylaws. Perhaps the most obvious is the relative informality with which they may be treated. Corporate bylaws have the force of law behind them to ensure compliance. Another document purporting to be rules of the corporation simply does not. Moreover, the CNCA requires that official bylaws be filed with Industry Canada so it is always clear which bylaws are the official set belonging to the corporation. The same could not be said of another informal document.

Fundamentally, it will be up to each corporation to determine the appropriate course of action. But, to paraphrase Robert Frost, sometimes taking the path less travelled makes all the difference when it comes to bylaws.

Adam Aptowitzer of Drache Aptowitzer LLP is a charity law lawyer with a national practice based in Ottawa. He has been published in Canadian Taxpayer, Canadian Fundraising & Philanthropy and the Not-for-Profit News. He has also published a widely distributed study on the regulation of Canadian charities with the C.D. Howe Institute.

As a speaker, he has presented to the National Symposium of Charity Law, the C.D. Howe Institute, the Association of Fundraising Professionals, the Canadian Association of Gift Planners, the Ottawa Estate Planning Council and various large and small Canadian charities. He has also given expert advice on Parliament Hill. Adam is an executive member of the Canadian Bar Association's Charity and Not-for-Profit Law section.

For speaking engagements and consultations, contact him at 613-237-3300 or visit http://www.drache.ca.



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