There has been an overhaul of the laws governing not-for-profit corporations, also commonly called non-profit corporations. Ottawa was off the mark first. It passed The Canada Not-for-Profit Corporations Act in 2009 making significant changes for corporations incorporated under Federal jurisdiction. These changes are is in effect now. However, most non-profit corporations in Ontario are incorporated under Ontario’s jurisdiction (via The Corporations Act). In an effort to be consistent with the Federal legislation, Ontario passed the Not-for-Profit Corporations Act in 2010. Unfortunately, it’s implementation has been delayed several times. It is expected to be in force in 2014, perhaps as early as January 1st. Although the Federal and Ontario laws are similar, there are differences.
For the purpose of this article, I will focus on the new Ontario law. Before doing so, I should point out that this is totally separate from charitable status (ie the ability to issue charitable receipts). Charitable status is obtained under the Income Tax Act.
Some of the features of the new Not-for-Profit Corporations Act are as follows:
• Incorporation. For new corporations, the process has been simplified (turnaround will go from several weeks to days).
• Financial statement audits. There will be an option to use less expensive review engagement or an audit exemption, depending on the circumstances, instead of the more costly audits currently required.
• Transition. There are transition provisions for existing non profit corporations. Basically, after 3 years from the implementation date, the letters patent (to be called articles) and by-laws of the corporation will be deemed to conform with the new law. In other words, if nothing is done, the law will deem the changes to have been made. Letting this happen by the transitional provisions is not recommended because the membership, not knowing the law, can mistakenly follow what they think is valid.
• Membership classes. More than one class will be allowed but at least one class has to have voting rights.
• Directors. Directors do not have to be members unless the by-laws provide otherwise. Also, a floating number of directors will be allowed vs. the current fixed number (say 1 to 20).
• Non profit corporations will either be Public Benefit Corporations (“PBC”) or Non-Public Corporations (“non-PBC”). A non-profit corporation is a PBC if it was incorporated as a “charitable corporation” (ie for the relief of poverty, advance of education or religion etc.) or if it receives more than $10,000 per year from a public donor who is not a member or from a government agency. All other corporations are Non-PBCs. It is an important distinction because there are additional requirements for PBCs.
Non profit corporation should be looking into making the appropriate changes in a proactive way to avoid unintended consequences.
Michael Cobb is a lawyer at the law firm of Cobb & Jones LLP. Should you have any questions for Ask A Lawyer, please direct them to the Simcoe Reformer or ask a lawyer of your choice. For more articles, visit the Library page at www.cobbjones.ca.