Governance changes and the new Ontario Not-for-Profit Corporations Act

publication date: Jan 25, 2013
 | 
author/source: Mark Blumberg and Kate Robertson

The Ontario Not-for-Profit Corporations Act (“ONCA”) will affect over 50,000 nonprofit corporations that are currently incorporated under the Ontario Corporations Act (“OCA”).The Ontario government is now aiming to bring the ONCA into force on July 1, 2013; however this target date could be delayed further.

There has been a great deal of attention surrounding the ONCA over the last few years and it has increased even more over the last few months. As a result, many nonprofits and charities already feel unnecessarily apprehensive about the new act coming into force. Practically speaking, most organizations need to do very little regarding the new legislation right now.

Ample time for compliance

The implementation of the ONCA will provide a good opportunity for Ontario nonprofit corporations to assess their governance practices and make changes. Existing Ontario nonprofit corporations will have three years from the proclamation date to make any necessary changes to their corporate documents in order to bring their organization into conformity with the new ONCA requirements. While three years is not an eternity, it is until mid-2016 and does provide an organization with ample time to ensure they are in compliance with the ONCA.

Guidance to watch for

To understand the ONCA framework and its impact on their organization, nonprofits will need to wait for the Ontario government to release certain documents including the following:

  • A simplified plain-language guide to the ONCA;
  • Regulations covering various matters;
  • Forms that will need to be completed;
  • A draft default By-Law; and
  • A Nonprofit Incorporators Handbook.

While some matters can be resolved by examining the ONCA legislation, others cannot be dealt with until the regulations and other documents (such as the ones listed above) are released. For most organizations, it makes little sense to jump into the intricacies of the ONCA with so much information still lacking. Having a discussion with only 70% of the information available is a recipe for frustration.

In the meantime

If your organization is feeling pressure to take action, or is interested in generally improving its governance structure, here are some things you might want to consider first.

Are you a federal or Ontario nonprofit corporation?

Yes, it makes a difference! Your letters patent (articles of incorporation) will identify whether you are an Ontario or federal nonprofit. If you don’t have the letters patent, and don’t know which statute you are incorporated under, then try searching the free Industry Canada database.

If your organization is not listed in that, but is based in Ontario and incorporated, then the likelihood is that you are an Ontario nonprofit corporation under the Ontario Corporations Act. Some organizations that are trusts or unincorporated associations will not be affected by the ONCA. Unfortunately, there is no facility to do free corporate searches from the Ontario government; most law firms can do that for you. If you are a Federal CCA or CNCA corporation, the ONCA does not apply to you.    

Ontario corporations may want to consider continuing into the Federal jurisdiction under the Canada Not-for-profit Corporations Act (CNCA). The CNCA affects the 19,000 federal nonprofit corporations incorporated under the Canada Corporations Act (CCA). This Act has been in force since October 17, 2011 and allows an Ontario nonprofit to continue under the federal jurisdiction. The CNCA is a modern act that has been a great corporate platform for nonprofits.

Do you have copies of the letters patent, supplementary letters patent and by-laws for the organization? Do you have a minute book?

If not, the letters patent and supplementary letters patent can be obtained from the Ontario government; however they do not keep copies of the by-laws. Also, if you are a registered charity, the Canada Revenue Agency may have copies of some of these documents. Keep in mind that the CRA documents may not be up-to-date depending on what you have given the agency in the past.

Are the objects/purposes of your organization up-to-date and relevant for the current work of your nonprofit?

In some cases, it may make sense to update the organization’s objects as part of the corporate changes.

It is important to remember that all registered charities will need to ask CRA for pre-approval of these revised objects. At times, it can take months for CRA to review the objects and the accompanying detailed description of activities that CRA requires to be filed with the new objects. You may wish to begin this process six months before you start making any corporate law changes in order to give your organization enough time.

Drafting objects can be tricky. Be careful and precise with objects, especially if you are a charity; otherwise, the objects may be considered vague or broad and will not be charitable. In the near future, CRA will release a new guidance document on drafting objects that many people will find helpful. If you will need to change your objects, legal advice may be helpful.

Is your nonprofit’s governance structure appropriate?

If not, what kind of governance structure do you want? Is it a “working board,” “policy board,” “fundraising board,” etc.? If your current board is ineffective and uncooperative, it will not likely change once the organization transitions to the ONCA. It would be useful to consider looking into governance training and advice so that the new board can be more successful, strategic and effective.

Do you have a copy of your most recent by-law and are there any particular features of your by-law that must remain within the new by-law under the ONCA?

Until you are able to review the Ontario government’s draft default by-law, the regulations, and commentary/tools such as the “Plain Language Guide,” it probably does not make much sense to start revising your existing by-law or begin drafting a new by-law. Generally, it makes the most sense to start with a brand new by-law under the ONCA and modify it as necessary, rather than making the required changes to your current by-law, which is quite outdated (the Ontario Corporations Act is 60 years old). 

Do you know who your members are?

(Members are different from board members!) Members are like shareholders in a for-profit company, except that members don’t own the corporation, they control it.

Because members essentially control the organization, your organization should carefully consider who the members are. In some cases you may wish to reorganize or limit membership. Some organizations have had very open membership policies; membership was sometimes used as a marketing ploy with almost anyone who had anything to do with the organization being a “member.” But those “members” were often non-voting, not provided notice of members’ meetings, and not consulted on major decisions.

Does the organization require more than one membership class? If so, what attributes will each membership class have (i.e. name, notice, vote, etc.)? Who are your members and do you have an up-to-date list of these members? Are you aware of new member rights and voting by class which in some cases even allows non-voting members to vote? 

For many nonprofits, it will make the most sense to have one membership class under the ONCA, if they don’t have that already.  Otherwise, in some cases, a small group of non-voting members may be able to veto the plans of a much larger group of voting members, which could create problems within the organization.

Does the organization want to maintain its current name?

If it is interested in using a different name, have you done an Ontario-focused NUANS name search?  

Do you have a current list of directors with their residential addresses, telephone numbers and e-mail addresses?

We don’t yet know what exactly will need to be provided to the Ontario government for the ONCA, but it would be useful to have an updated list of directors’ information in any event. You can see the type of matters that may be covered by the regulations at, for example, the Ontario Government’s Recent Regulatory Registry for the proposed MCS regulations.

Do you have a current list of officers – e.g., Chair, President, Secretary, Treasurer, etc.?

What address do you want to use for your corporation under the ONCA?


(Registered or head office address, mailing address, etc.)

Are you up-to-date in the corporate filings for your organization? 

If not, you may want to do arrears in filings.

When is the organization’s annual general meeting held?

Do you want to obtain membership approval of the corporate changes at the AGM, or do you want to have another Special General Meeting to approve the necessary corporate changes? Knowing when your AGM is typically held may help with planning the process if changes are required and member support is needed.

Nonprofits and charities do not require legal assistance to make the changes under the new ONCA.  However, some nonprofits and charities could benefit from the experience and advice of a nonprofit or charity lawyer in order to minimize time, acrimony and aggravation. 

Mark Blumberg and Kate Robertson are lawyers at Blumberg Segal LLP in Toronto, Ontario.  To find out more about legal services that Blumbergs provides to Canadian charities and nonprofits please visit www.canadiancharitylaw.ca  or www.globalphilanthropy.ca  Blumbergs also has a section on the new Federal and Ontario nonprofit corporate acts.

This article is for information purposes only. It is not intended to be legal advice. You should not act or abstain from acting based upon such information without first consulting a legal professional.


Like this article?  Join our mailing list for more great information!


Copyright, Hilborn Stanois Inc., © 2011-Current. All rights reserved.

Free Fundraising Newsletter
Join Our Mailing List

CPA NFP Forum


 

Hilborn:ecs