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Revising the Corporations Act: A Brief on the Dedicated Public Benefit Corporations Act

This brief highlights the need for a dedicated act for organizations serving the public good. It addresses the confusion between trade associations, membership corporations, and public benefit organizations. It also discusses the difference between charitable and non-profit corporations and the need for improved charitable regulation. The brief advocates for an "As of Right" incorporation process for public benefit organizations, emphasizes the importance of non-distribution constraints, and suggests a flexible approach to directors and membership rights. Lastly, it proposes working with the government to modernize corporate legislation and ensure clarity for the public.

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Revising the Corporations Act: A Brief on the Dedicated Public Benefit Corporations Act

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  1. Revising the Corporations Act A Brief to the Sector

  2. A Dedicated Public Benefit Corporations Act. (non-profit) • Organizations serving the public good need their own act. • Trade Associations and true membership corporations (clubs) have different interests and needs and confuse the public about the true nature of public benefit organizations. • Organizations that can distribute assets to members should be in other legislation. Public Benefit Corporations cannot distribute assets to members except in very limited situations.

  3. A Dedicated Public Benefit Corporations Act • Should be so called because while they are not-for-profit (meaning all revenues are dedicated to the mission, and, retained for the public good on dissolution) the public gets confused and thinks they must never make a profit - e.g. breakeven or operate at a loss. • A Public Benefit Corporations clarifies the nature of the corporate identify and avoids confusing the public.

  4. Understanding the difference between charitable and non-profit corporations • A charitable organization is almost always non-profit and a charity. Charities have additional privileges and obligations. • Donations to a charity are eligible for tax relief under the CRA. Moreover Charitable Foundations are restricted to making grants to charities. • Charities are subject to more regulation butthat regulation is located elsewhere - not in the Corporations Act

  5. Charitable regulation requires improvement • Ontario Public Guardian and Trustee of the Attorney General’s Office and Canada Revenue Agency (CRA) Charities Directorate both regulate charities. • This causes difficulties and confusion for charities. Who does what? when? • Other provinces have delegated to CRA responsibility for charitable regulation and enforcement.

  6. Public Benefit Incorporation should be “As of Right” • Meaning - that after meeting minimal criteria public benefit organizations may incorporate. • The alternative is government deciding what is or is not a public benefit which may be cumbersome and slow to respond to emerging issues. • All public benefit corporations will be subject to stringent non-distribution constraints.

  7. Why “As of Right?” • We do not believe that others, not genuinely interested in the public good, will find the non-distribution restraints appealing. • CRA is already responsible for approving tax relief to public benefit organizations so they will act as a control if there are dubious public benefit organizations.

  8. Unrestricted right to earn revenues • Public Benefit Corporations must not be limited in their ability to earn revenues. • The current act does not limit revenue generation by non-profit corporations. • The PBC Act will limit the corporation’s ability to confer private benefit. (e.g. pay exorbitant salaries.) The Corporation must spend to further the mission. • And on dissolution their assets must remain in the public domain.

  9. The Powers of a Natural Person • Business Corporations have the powers of a natural person and we think non-profit public benefit corporations should have the same rights. • Charities, by virtue of their special status have controls and regulations that limit their activity.

  10. Flexible Approach to Directors • Three director minimum – at a minimum stand for election every three years, modern approach to calling meetings, • Liability – same duty of care as for-profit. Directors not personally liable (acting in good faith) statutory liability remains

  11. Membership, rights and remedies • Role of members to elect directors to make decisions • Right to financial disclosure, to by-law approval and to require compliance with Act, articles, and by-laws • Right of interested “other parties” to seek court permission for corporation’s “best interest.”

  12. An exciting opportunity to work with Government • Clarifying and modernizing corporate legislation for Public Benefit Organizations. • Ensuring clarity for the public as to the true nature of public benefit corporations. • Robust non-distribution constraints to ensure public benefit. • Streamline and improve charitable regulation • Work with Government to keep regulations updated.

  13. ONN Expert Working Group preparing briefing notes to the sector on the modernization of the Corporations Act. • Contact Chair: Janice Wiggins janice@volunteerlawyers.org • April 28 launch: www.ontariononprofitnetwork.ca

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