The by-law conundrum: amend, start over, or a mixed approach

publication date: Feb 20, 2012
 | 
author/source: Joel Secter
Not-for-profits and registered charities incorporated federally under Part II of the Canada Corporations Act ("CCA") have until October 17, 2014 to continue under the new Canada Not-for-Profit Corporations Act ("NFP Act"). Arguably the most challenging aspect of continuance for non-share corporations is going to be reaching agreement among the members on a new general by-law for the corporation. (Invariably by-laws created under the CCA will not comply with the NFP Act.) Joel Secter photo

While the corporation does not need to submit by-laws in order to obtain a Certificate of Continuance, we recommend that they be contemplated prior to filing Articles of Continuance with Corporations Canada, as they will be required within a year of receiving member approval. The conundrum for many organizations will be whether to amend the corporation's existing general by-law or to adopt an entirely new one. The best approach may prove to be a combination of the two.

Make sure you're reviewing by-laws you filed

Now that the NFP Act is in force, continuing under the new federal law is a topic being discussed by boards across the country. According to the Transition Guide for federal not-for-profit corporations, the first step to continuance is reviewing the corporation's letters patent and by-laws.

For most organizations, locating these documents will be as easy as looking in the minute book of the corporation. For others, it may prove to be more difficult. Regardless, it would be a good idea to request a copy of the corporation's by-laws from Corporations Canada in order to ensure that the version being reviewed actually received ministerial approval. Requests for copies of governing documents including by-laws can be sent by email. Depending on the number of pages, there may be a nominal fee.

Non-share corporations sometimes operate with dated or unapproved by-laws. Continuance affords these organizations an excellent opportunity to replace the corporation's general by-law with a completely new one. While Corporations Canada provides model by-laws as guidance to "typical" not-for-profit corporations, these and other tools available to do-it-yourself ("DIY") applicants are not intended to be a substitute for legal advice.

DIYers should be advised that there are many default provisions in the NFP Act that will apply unless overridden by the corporation's articles or by-laws. Some default provisions in the legislation can only be overridden in the Articles and others cannot be overridden at all. Thus, one of the main benefits of creating a customized by-law is to override the provisions of the NFP Act that could lead to untoward consequences for the corporation.

Can an organization keep its by-laws?

Non-share corporations may be very attached to their current by-laws. They likely spent considerable time and effort formulating them and, for practical reasons, would prefer to maintain the status quo. While adapting an existing set of by-laws to comply with the NFP Act is laudable, bear in mind that it may take longer and cost more to review the corporation's existing by-laws because each paragraph will have to be analyzed to ensure it does not conflict with the law and regulations.

While such a review will be straightforward for "typical" not-for-profit corporations, it will undoubtedly be more complicated for corporations with more complex governance structures. Nevertheless, considering the potential drawbacks associated with starting from scratch, proceeding this way may be the path of least resistance for many corporations.

How to merge current and new by-laws

Recognizing that one size does not fit all, it may make sense to take a hybrid approach and merge the corporation's current general by-law with a new one. For example, the corporation could identify the provisions in its by-laws that it would most like to preserve and bring these to the attention of their lawyer. In turn, the lawyer could incorporate these provisions into a new document that is already tailored to suit the NFP Act.

By carving out the areas in the corporation's by-laws that would be best left alone - and leaving the rest up to counsel - the organization could save time and money. Moreover, it will be able to keep entrenched organizational practices while ensuring compliance with the NFP Act.

File by-laws with Articles of Continuance

While the new or amended by-laws do not need to be submitted with the Articles for Continuance, they will need to be filed with Corporations Canada within twelve months of being approved by the members.

Depending on the circumstances, we recommend filing all documents together. Articles and by-laws are complementary documents and some provisions can only be included in one or the other. Preparing and approving them in tandem will reduce the likelihood of making errors and omissions.

In addition, a corporation that does not submit by-laws with its Articles of Continuance will be without a general by-law for the interim period and, as a result, be governed by the default rules of the NFP Act. This could result in unforeseen problems for the corporation, considering that members and other complainants now have remedies under the NFP Act.

In summary, I hope that federally incorporated not-for-profits and registered charities take advantage of the New Year to conduct a by-law review with an eye to continuing under the NFP Act. As outlined above, the by-law conundrum is whether to adopt a new general by-law or adapt the existing one.

Adopting a new one may be appropriate for "typical" not-for-profit corporations with model by-laws. It will also be suitable for corporations that have by-laws that are dated or no longer meet their operational needs.

The upside to amending the current by-laws is, to the extent possible, maintaining the status quo. The downside is that it may take longer and cost more depending on the level of complexity. Either way, I recommend consulting someone knowledgeable in the area to ensure that the corporation is operating in compliance with the NFP Act and not inadvertently exposed to its default provisions.  

Joel Secter is a lawyer with Drache Aptowitzer LLP in Ottawa. He can be reached by email.

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