Ontario Announces Changes Dealing With Not-For-Profit Corporations
The Ontario government enacted legislation several years ago that is intended to modernize the outdated law governing corporations without share capital. The Ontario Not-for-profit Corporations Act (the “ONCA”) received Royal Assent in 2010, but has not been proclaimed and is not yet in force. The main reason for the delay is the need to implement an electronic filing system. Ontario has lagged behind other provinces and the federal regime administered by Corporations Canada.
Ontario introduced Bill 154 on September 14 ("The Cutting Unnecessary Red Tape Act, 2017") to deal with a number of issues, including the partial, indirect, implementation of parts of ONCA, by amending the Corporations Act, (the "OCA"). The government says the proposed legislation will help build a smarter, more modern regulatory environment by rooting out unnecessary burdens and streamlining regulations.
While the proposed legislation deals with a broad range of issues, a significant goal is to provide businesses with the option of electronically submitting any required documentation, rather than continuing to rely on paper filing. Several significant points are worth noting:
- The use of proxies will be optional under the ONCA. The by-laws can specify the person who can be given a proxy. A corporation will be able to decide whether it wants to limit the use of proxies by members, and if it does, it will be able to restrict the use of proxies to appointment of one of its members.
- A corporation will be able to determine that fewer than 21 days will be appropriate for distributing its financial statements to members before an annual general meeting. This will give corporations more flexibility in scheduling their annual general meetings, based on when they expect their financial statements to be approved by the board.
- Implementation of the provisions in the ONCA regarding classes of membership will be deferred for at least years after the ONCA comes into force. As a result, the rights of non-voting members to vote in certain circumstances and voting by separate classes on certain matters will also be deferred. These changes (and others) are a result of extensive consultations with and input from several organizations, including the Ontario Bar Association.
- It will not be necessary for the government to amend legislation to increase the $10,000 minimum revenue requirement for a corporation to qualify as a "public benefit organization". This can be done by regulation.
- Technical amendments will be made with respect to the issuance of corporation numbers for identification.
- The OCA will be amended to implement some of provisions of the ONCA, so they will become effective on enactment of Bill 154, rather than being delayed until the ONCA comes into effect.
- The amendments to the OCA will include the following:
- Members will be able to meet by telephonic or electronic means or use other electronic communications.
- Corporations will have the rights and powers of a natural person, consistent with other modern legislation. Acts of a corporation outside of its objects or purposes will be enforceable by third parties.
- A corporation will be able to dispose of all or substantially all of its undertaking if authorized to do so by a special resolution.
- The standard of care to be exercised by directors and officers will be the objective standard common to virtually all modern corporate statutes. However, no contract, by-law, resolution or other document will relieve a director or officer from those duties or from liability for breaching them.
- Members will be able to remove a director by a majority vote, rather than a two-thirds vote.
- Members will be able to decide not to appoint an auditor and not have an audit, where the annual revenue (not "income" as currently provided) does not exceed $100,000, if a resolution is passed by at least 80% of the members present at a meeting (rather than the current requirement for 100% of the members to agree).
- A corporation will be able to state in its by-laws that a director need not be a member, unlike the current law. A director will be required to consent in writing.
In addition, under proposed amendments to the Charities Accounting Act, charities will be able to make "social investments" to carry out their purposes and receive a “financial return”. The implications of these changes are not easy to assess and the proposed legislation is not as clearly drafted as might have been hoped. There is a great deal of uncertainty with respect to a number of basic issues, including the overlap (or lack thereof) between these amendments and the current provisions of the Trustee Act, which will not apply to “social investments”.
The proposed legislation is not well drafted. Some of the provisions dealing with implementation, transition and eventual repeal of the amendments to the OCA ( on implementation of the ONCA) are confusing and unclear. It is hoped that these issues will be clarified in due course. The government apparently hopes that the amendments to the OCA will be implemented around the beginning of 2018 but the ONCA will likely not come into effect before 2020 at the earliest, while the government continues to implement the electronic filing system.
These changes will require further study (and it is hoped will be clarified and amended where necessary during the legislative process), but they are a welcome step in the right direction.