After more than two years since it received royal assent, the new Canada Not-for-Profit Corporations Act (the “CNCA”) is in force as of October 17, 2011. The CNCA applies to all federally incorporated not-for-profit organizations and replaces the legislation under which they previously operated, Part II of the Canada Corporations Act.
Existing federal not-for-profit corporations have three years in which to transition to this new regime, failing which they will be dissolved, and they must actively take steps to effect this transition. Anyone wishing to incorporate a new not-for-profit organization during this transition period must do so under the CNCA.
The CNCA attempts to modernize the corporate governance standards applicable to federal not-for-profit corporations and to make the not-for-profit sector more accountable to the public. It makes significant changes to the way in which not-for-profit corporations are regulated. Some of the key elements of this new framework are:
- Incorporation – Corporations will be able to incorporate under the CNCA ‘as of right’ upon filing the required documents and paying the prescribed fee, resulting in a more streamlined incorporation process than existed under the old legislation.
Soliciting Corporations – The CNCA classifies corporations as either “soliciting” or “non-soliciting”, depending on the amount and source of funding they receive in a given financial year. Soliciting corporations are subject to more stringent regulation, the rationale being that because they receive public funding in excess of a de minimus threshold, they should be more accountable to the public for the use of those funds.
Generally, a corporation is “soliciting” if it receives more than $10,000 in donations or gifts from any person (except for members, directors, officers, employees or any of their family members), corporation or other soliciting corporation or in government grants or similar financial assistance.
- Authority and Capacity – The CNCA expressly grants corporations the capacity and the rights, powers and privileges of a natural person. Subject to voluntary restrictions adopted by corporations in their articles (which will be a necessary step for registered charities) and other applicable legislation, corporations may carry on any activities throughout Canada and in jurisdictions outside Canada to the extent that the laws of that jurisdiction permit. Although the CNCA prohibits corporations from carrying on any activities or exercising any powers in a manner contrary to their articles, no act of a corporation is invalid by reason only that the act is contrary to the articles or the CNCA.
- Constating Documents - Corporations regulated by the CNCA must have both articles and by-laws. Previously, a corporation’s by-laws were required to be very detailed as the former legislation did not address many operational issues, leaving them to be resolved in the by-laws. In contrast, the CNCA now covers many of these issues; as a result, corporations’ by-laws are now required to cover fewer topics. In addition, different thresholds of approval are required to amend different types of by-laws. As part of the transition process, corporations will have to decide how much detail to include in their by-laws and how they should be structured.
- Directors – Corporations need only have one director, except that soliciting corporations must have at least three directors, two of whom may not be employees or officers of the corporation or its affiliates. The directors must be elected by the members although, subject to the by-laws, directors may also appoint a limited number of additional directors and may fill vacancies on the board.
- Financial Review – The CNCA imposes more stringent financial review requirements, including the appointment of an auditor and the need to conduct an annual financial review. The actual requirements imposed (and whether a corporation is exempted from any requirement) will vary depending on the level of funds received and whether an organization is “soliciting”.
As a result of the changes brought about by the CNCA, corporations will likely need to make a number of changes to their governing documents. In order to continue under the new regime, corporations should:
- Review their current governing documents to determine amendments required to comply with the CNCA and any other amendments that they may wish to make;
- Prepare articles of continuation and new by-laws that conform with the CNCA;
- Obtain director and member approval, as applicable, of the articles and by-laws;
- If registered charities, they may need to also obtain CRA approval of their new documents (depending on the changes being implemented in connection with the continuance); and
- File the application for a certificate of continuance.Although existing corporations may continue to operate under the old legislation during the next three years, we recommend starting the transition process without delay. Please contact a member of our Charities and Not-for-Profit Organizations Practice Group for further information and assistance with this transition.
Although existing corporations may continue to operate under the old legislation during the next three years, we recommend starting the transition process without delay. Please contact a member of our Charities and Not-for-Profit Organizations Practice Group for further information and assistance with this transition.
To sign up for Davis LLP bulletins and alerts, please email firstname.lastname@example.org.