The Canada Not-For-Profit Corporations Act, 2009

The Canada Not-For-Profit Corporations Act, 2009 What You Should Know Presenter: Sheldon L. Wood B.A., LL.B. General Counsel for Teen Challenge Inc. (Canada)

Two New Not-For-Profit Acts: Canada Not-For-Profit Corporations Act, 2009 (‘CNCA’) - proclaimed in force as of October 17, 2011 Ontario Not-For-Profit Corporations Act, 2010 (‘ONCA’) - to be proclaimed in force in late 2012 (?)

Reasons for new Act: - CNCA replaces the ‘Canada Corporations Act’ (the ‘CCA’) which had not been significantly changed since enactment in 1917 (complicated legislation geared towards ‘for profit’ corporations) - CNCA simplifies the incorporation process (incorporation ‘as of right’ without need for a substantive review of Application and corporate By-Laws)

Reasons (continued): - Provides for electronic registration of Application for Incorporation (presently not available due to need to pass regulations and set up system) - Encourage ability of non profits to engage in (limited) commercial activities to support their non profit activities (must still keep in mind common law limitations)

Reasons (continued): - Encourage professionals to participate as Directors on non profit boards (‘objective’ liability standard replaces previous ‘subjective’ standard) - Directors now able to rely on professional advice, opinions and reports in making decisions (without having to make further inquiries beyond reasonable due diligence)

Reasons (continued): - CNCA lessens the administrative burden and associated costs for smaller not-for-profit corporations (particularly regarding audit requirements) - CNCA attempts to be a plain language, workable statute (it avoids previous overlap of sections with for-profit corporations as in the CCA)

Why Not to Ignore the CNCA: 1. Comply and continue, or be dissolved - existing Letter Patent and by-laws need to be reviewed to ensure compliance with CNCA, otherwise there will be ‘deemed compliance’ with mandatory default provisions of the Act; - after corporate by-laws are revised to meet needs of the corporation (in accordance with allowable optional provisions under the CNCA), Articles of Continuance (Form 4031) need to be applied for (prior to October 17, 2014)

Not to Ignore (continued): 2. Avoid Liability There are substantive changes under the CNCA that Directors and Officers need to be aware of. Not knowing and meeting CNCA requirements in governance matters could amount to a failure to meet the legal duty of care, leading to personal liability. CNCA s.148 states “every Director and Officer... must exercise the care, diligence and skill that a reasonably prudent person would exercise”. Reasonable to assume this includes having a familiarization with legislation governing the corporation?

Not to Ignore (continued): 3. Increased Members Rights and Powers - CNCA expands and clarifies rights and remedies available to members. Members rights are strengthened and potential ability to control (some) actions of corporation are increased. 4. Meet and deal with new audit requirements - define ‘soliciting’ and ‘non-soliciting’ corporations (differing revenue limits before mandatory audit)

CNCA Significant Changes: 1. Increased ability to engage in commercial activity (truth or fiction?) - limited restrictions on commercial activity provided they are set out in Articles of Incorporation (cannot be banking, insurance or trust company activities); - commercial activities must not violate common law in that they must be related to the corporate objects, they cannot be the primary activity of the corporation, and revenues must be reinvested in support of the not-for-profit purpose.

CNCA Changes (continued): 2. By-Laws need not be filed with Application for Incorporation, but can be submitted within 12 months following membership approval. 3. By-Laws no longer subject to ministerial approval. However, where they do not comply with the CNCA, there will be deemed compliance with the mandatory default provisions.

CNCA Changes (continued): 4. Membership classes and voting rights must be set out in Articles. Conditions for membership, member discipline and member meeting notice requirements must be set out in by-laws. 5. Separate member classes must approve corporate changes affecting that member class, as well as certain ‘fundamental’ changes to the corporation (even if otherwise a non-voting member).

CNCA Changes (continued): 6. ‘Ex Officio’ directors no longer permitted (work around is to set up a limited membership class wherein a Director can only be elected/replaced by that member class). 7. ‘Unanimous Membership Agreement’ can allow members to control certain corporate activities usually reserved to the Board.

CNCA Optional Provisions The CNCA contains mandatory and optional provisions. Failure to set out optional provisions in by-laws will cause a default to the mandatory provisions in the Act. Examples of ‘Optional Provisions’ are: - unlimited borrowing powers to Directors without further member approval - limited participation at members meetings by electronic means

Optional Provisions (continued): - permitting proxy voting and setting form of proxy - setting quorum for members meetings at more than bare majority - allowing for specific members rights to continue after membership terminated - allowing for insurance and indemnity for Directors, Officers, employees, members etc. - establishing process for member discipline - requiring that Directors must also be members

CNCA Provisions for Directors: - Directors need not be members unless by-laws say otherwise - non-soliciting corporations need only have one (1) Director - soliciting corporations require at least three (3) Directors, two of whom are not Officers or employees of the corporation - staggered terms of office for Directors are permitted

CNCA Directors (continued): - Directors may be removed by ordinary resolution (majority vote) of members (except for Directors appointed by a specific membership class) - Subject to the Articles, By-Laws or a Unanimous Membership Agreement, the Board appoints Officers and specifies their duties - Directors jointly and severally liable for up to six (6) months wages in dissolution (where recovery is not provided for by the corporation) or in bankruptcy proceedings

CNCA Provisions for Members: - two-thirds (2/3) members approval required for Articles of Continuance and CNCA compliant by-law - member classes and voting rights attached to each must be set out in Articles - only specific member class can vote for changes affecting that class

CNCA Members (continued): - member classes vote separately on ‘fundamental changes’ (including ‘non-voting’ members). Each class is allowed at least one vote even if by-laws say otherwise - ‘fundamental changes’ include amalgamation, continuance in another jurisdiction, extraordinary sale/leases/exchange of property, change of corporate name, amending corporate activities, creation of new membership class, (continued on next slide)

CNCA Members (continued): (‘fundamental changes’ continued) - changing a condition of membership or a discipline process, increasing or decreasing the number (or minimum and maximum number of) Directors, changing provisions for the distribution of property remaining on liquidation after discharge of corporate liabilities etc.

CNCA Members (continued): - Articles and/or by-laws must set out circumstances and manner in which discipline can be exercised (no arbitrary termination or suspension of membership) - rules of natural justice apply to member discipline (must be done in ‘good faith’ and be conducted in a ‘fair and reasonable manner’). Member has a right to proceed in court if they feel aggrieved by discipline

CNCA Members (continued): - Members have right to access corporate records, financial statements and members lists (members list access restricted to use for promotion of member participation – not for business or personal reasons) - members may enter into a ‘Unanimous Members Agreement’ (non-soliciting corporations only) to restrict Board powers in managing affairs of the corporation

CNCA Members (continued): - member(s) may bring derivative action in court on behalf of corporation where they feel Directors have not taken legal action to protect corporate interests - member(s) may seek oppression remedy - neither a derivative action or oppression remedy is available for ‘faith based’ (religious/theological) decisions of a corporation

CNCA Members (continued): - any member entitled to attend a meeting may submit a proposal at an annual members meeting, to be discussed and voted upon. The proposal shall be included in the notice of the meeting circulated to the members. The proposal must relate in a significant way to the activities and affairs of the corporation. - five per cent (5%) of voting members may requisition a meeting (less if by-laws allow)

CNCA Financial Disclosure: Soliciting and Non-Soliciting Corporations: - financial statements must be made available to members, Directors, Officers and public accountants Soliciting Corporations: - more than $10,000 received from one or more public (non-member et al) donors or by way of grant or financial assistance from a government or government agency

Financial Disclosure (continued): - financial statements must be publicly available Non-Soliciting Corporation - more than $10,000 received from one or more of a member, Director, Officer, employee or the spouse of such (or the child, parent, sibling, grandparent, uncle, aunt, nephew, niece of such – or their spouse) - financial statements do not need to be made publicly available

Financial Disclosure (continued): “Soliciting Corporation” - status is determined as of the financial year end - status starts or ceases as of the date of the Annual Members Meeting, and then continues for three (3) years. If there is another ‘financial year’ over the threshold of $10,000 from public/government sources during the three years, the status period re-starts

CNCA Audit Requirements: Soliciting Corporations: - revenue less than $50,000 allows members to unanimously resolve not to appoint a public accountant - revenue exceeds $50k but is less than $250k requires an audit unless members pass a special resolution (two-thirds) to undertake a review engagement - more than $250k requires a mandatory audit

CNCA Audit Requirements Non-Soliciting Corporations: - revenues less than $1 million allows members to unanimously resolve not to appoint a public accountant - revenues more than $1 million makes an audit mandatory

Thank you for your participation. Sheldon L. Wood B.A., LL.B. General Counsel Teen Challenge Inc. (Canada) Lambeth Box 777 London, Ontario N6P 1R6 1-888-417-7777 Wood_Law@Live.com

The Canada Not-For-Profit Corporations Act, 2009