In 2014 there will be significant changes to the legislation governing Ontario’s not-for-profit corporations. The changes will affect requirements of directors and the by-laws. In this article Curtis discusses the timeline for those changes and recommends first steps for ensuring your not-for-profit is ready.
In October 2010, the Ontario Not-for-Profit Corporations Act, 2010 (the “Act”) was passed by the Ontario government. The Act will replace the Ontario Corporations Act, which currently governs all Ontario not-for-profit corporations, including most charities. The date that the Act was to come into effect has been delayed on multiple occasions. In late March of 2013, the Province of Ontario announced that the Act will not come into force until January of 2014 at the earliest. The Act will come into force by proclamation by the Ontario government and will immediately apply to all non-share capital corporations incorporated under the Ontario Corporations Act.
The Act has a built in transition period which should allow for not-for-profit corporations to make a smooth transition into the new regime. The Act gives a three year window for not-for-profit corporations to amend their letters patent, resolutions, constitutions, and/or by-laws in order to comply with the new requirements. After the three year period expires, any corporation that has governance documents that do not comply with the new Act will be deemed to have had those documents amended to comply with the Act. This is different than the Canadian not-for Profit Corporations Act, which automatically dissolves the corporation if their legislation is not followed.
While the changes under the Act may seem minor, they could have a large impact on some not-for-profit corporations. Under the Act, members of not-for-profit corporations will now have a larger role with some aspects of the corporation. The Act has put in place mechanisms to greater protect the interests of members and gives members who disagree with the direction of the corporation more options to challenge that direction. The Act also changes some requirements for the board of directors of these corporations. The board of directors of not-for-profit corporations are now required to consist of at least three directors, and there are also some minor changes to surrounding the requirements of individual directors.
Corporations who may be affected by the new legislation should determine what impact this will have on them. The first step any not-for-profit corporation should take is to determine what legislation they were incorporated under. This can be determined by reviewing the original letters patent of the corporation. Once that is determined, the next step is to review the letters patent and the by-laws of the corporation to determine if they comply with the applicable legislation. This may also be a good time to determine if the by-laws (and other legal documents) are up-to-date and still reflect the operations and governance of the corporation. If the by-laws need to be amended, the provincial and federal governments have draft by-laws available which comply with the new legislation. Careful thought should be given prior to using the government’s draft templates, as they may need to be revised to fit a specific corporation’s needs. Once the new documents have been drafted, they will need to be approved by the members of the corporation and filed with the appropriate government body.
Assuming the Act does indeed go into force on January 1, 2014, a provincially incorporated not-for-profit corporation will need to amend its by-laws prior to January 1, 2017. While some may state that such a corporation can simply let their by-laws be automatically amended, this may have unintended consequences or may not work for specific not-for-profit corporations. Further, if the ‘deemed amendment’ provision is relied upon, it may be difficult to determine exactly what provisions have been amended, and in what way.
It is quite possible that the Act will have little or no effect on the governance of a specific not-for-profit corporation, but a thorough review of the documents will be required to determine if that is the case.