In 2010, the Ontario government passed the Not-for-Profit Corporations Act (Ontario) (ONCA). As of March 2018, however, the ONCA is not yet in force. As a result, the Corporations Act (Ontario), which was passed in 1990, as amended, continues to govern the affairs of Ontario not-for-profit corporations (NFPs).
Although Ontario's Corporations Act has seen a number of amendments over the years, a complete overhaul, as contemplated by the ONCA, would modernize the legislative scheme and provide considerable benefits to NFPs. The following are a few examples of existing Corporations Act provisions which will see changes when the ONCA enters into force to modernize the legislative framework:
Voting - Ontario's Corporations Act does not provide rules for members to be able to vote by proxy, whereas the ONCA allows members to vote at members' meetings by proxy or by mail, telephone or other electronic means if allowed under the NFP's by-laws.
Incorporation - Currently, an NFP seeking to incorporate under Ontario's Corporations Act must file an application with the Lieutenant Governor of the Province of Ontario that sets out certain information. If granted, the incorporating document is known as "letters patent." Under the ONCA, NFPs will be able to incorporate more easily by filing Articles of Incorporation, which more closely mirrors the process of incorporation for profit-generating corporations.
Directors' liability - Although Ontario's Corporations Act imposes a standard of care on directors, it does not include provisions setting out a due diligence defence for any acts or omissions on the part of the directors. Conversely, the ONCA clearly sets out the situations in which directors may be liable, and provides a due diligence defence to directors who exercise the proper standard of care, such as the good faith reliance on reports or advice of a lawyer or accountant.
Recent Amendments Through the Red Tape Act
Ontario's Corporations Act was recently amended in November 2017 through the Cutting Unnecessary Red Tape Act. These amendments bridge some of the gaps in anticipation of the ONCA overhaul. Some of the amendments came into force on Nov. 14, 2017 and others on Jan. 13, 2018.
Some of the notable changes include:
Electronic Communication - Meetings of members may be held by telephonic or other electronic means, which terms are broadly defined, unless the by-laws provide otherwise. Notices for members' meetings can also be delivered electronically.
Natural Person Rights - NFPs under Ontario's Corporations Act will have the capacity, rights, powers and privileges of a natural person. Previously, a NFP had to pass a by-law specifically conferring a particular power on the NFP or its directors. Additionally, the NFP's acts are valid even if the NFP acted contrary to its letters patent, its by-laws or the Corporations Act. This does not preclude such acts from being challenged by an interested person.
Removal of Directors - Members will have the ability to remove a director by a majority vote of members rather than two-thirds vote of members. There is an exception for directors who are directors by virtue of their office (ex officio). If the NFP's letters patent or by-laws were in place prior to Nov. 14, 2017 then the NFP may continue to require that directors be removed by a two-thirds vote of members.
Fiduciary Obligations - The standard of care and related duties of directors and officer are specifically set out in Ontario's Corporations Act. The obligations are similar to those found in other corporate statutes. This will allow directors and officers of NFPs to have an objective standard of care versus the more subjective standard of care imported from the common law which existed previously because the standard of care was not explicitly identified.
Audit Requirements -The members of a NFP that has revenue of less than $100,000 may pass an extraordinary resolution waiving the appointment of an auditor and an audit for that financial year. In this circumstance, the extraordinary resolution requires at least 80 per cent of the votes cast by members at an annual meeting rather than the 100 per cent that was previously required.
Next Steps and Transitioning to the Future NFP Regime
Firstly, NFPs will want to make sure that they are up-to-date with respect to the changes brought in late 2017 and early 2018 by the Red Tape Act, as these changes can help simplify and streamline corporate activities and reduce costs.
Next, NFPs should consider the potential effects of the coming into force of the ONCA on their operations. The ONCA is not projected to enter into force until 2020, and even when it does, NFPs already existing under Ontario's Corporations Act will be accorded a three-year transition period to make changes to their relevant corporate documents to conform with the ONCA. Until that time, existing NFPs will continue to be governed by the provisions of the Corporations Act.
It should also be noted that, just as was the case with the Red Tape Act, there may be other amendments to Ontario's Corporations Act and the ONCA before the ONCA actually enters into force. NFPs who decide to take anticipatory steps while awaiting the ONCA should remain vigilant to the possibility of further amendments.
The incremental amendments to Ontario's Corporations Act brought in through the Red Tape Act are welcome updates to the legislative regime. However, the piecemeal approach to updating the legislation leaves gaps and potential inconsistencies, which will likely only be rectified once the ONCA enters into force and modernizes the entire Ontario NFP regime.
Virginia Schweitzer is a partner with the Fasken Ottawa office and a leading corporate lawyer who has provided counsel to technology and mining clients across North America for IPOs, private placements, mergers and acquisitions, and to not-for-profit corporations on corporate governance issues.
Kevin Massicotte is an articling student with the Fasken Ottawa office. He is a graduate of the University of Ottawa, Faculty of Law and an award-winning cyclist who has competed internationally with Team Canada.
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