Pro Bono Students Canada

Not-for-profit Corporations Need to be Aware of Upcoming Changes (Queen’s Charities Legislation Project)

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By Doreen Barnes — St. Lawrence EMC — March 29, 2012

Not-for-profit Corporations Need to be Aware of Upcoming Changes  

Five Queen’s University Law students, from the Pro Bono Project Faculty, travelled to Brockville on Monday, March 5 to present the upcoming federal changes to the incorporation of not-for-profit organizations and touched on the provincial legislation which is also coming soon.

Charles Hammond, Arden Henry, Rachel Wasserman, Frederick Liu and Eric Buist offered their assessment to a group of 20 people at the United Way boardroom. Their presentation came about from a conversation between Dave Dargie, executive director, Brockville and Area Community Foundation and Frank Rockett, executive director of the Volunteer Bureau of St. Lawrence-Rideau.

“Dave Dargie approached us with this opportunity to work with the Pro Bono Project team,” said Rockett. “I thought this was of value to our membership, so we took on the project with a workshop delivery.”

Team leader Charles Hammond began by introducing the team and explaining why they were doing this.

“Law students get the opportunity to do some research and offer some legal information to different not-for-profit groups across Canada,” said Hammond. “So our project will be changes in the laws that are happening for not-for-profit and also directors’ liability.”

Hammond mentioned right off the top that the group is comprised of laws students, not lawyers, so they could not offer legal advice.

The reason for the change in the law as stated on the Industry Canada website is that ‘the Non-For-Profit Act offers new rules that are modern, flexible and better suited to the needs of today’s not-for-profit sector.’

With this information projected onto a screen, Wasserman spoke about changes to the federal law.

“The new federal legislation is the Canada Not-for-Profit Corporations Act (NFP Act) which replaces part two of the Canada Corporation Act,” said Wasserman. “This applies to federally incorporated, not-for-profit.”

Wasserman indicated that all not-for-profit organizations need to comply before the deadline of October 17, 2014.

“The Act has already passed,” he said. “So not-for-profits have already started with the transition.”

She mentioned that the old Corporations Act stays in effect until the moment the organization transitions, regardless of the deadline for the new Act.

“If you do not meet this deadline, the not-for-profit will be dissolved,” said Wasserman. “There are larger implications for charities.”

Wasserman indicated there are benefits for the new legislation, those being:

• a clearer set of rules that govern not-for-profit internal affairs,

• simplified processes,

• more flexibility to make fundamental changes,

• more objective standard for directors to carry out their duties.

“So what needs to change for the process?” asked Wasserman. “It’s a five-step process, which is all on-line, review your letter patent and by-laws, prepare articles, create by-laws, get members’ approval and submit the required documents. You need to replace letters patent and by-laws with a Certificate of Continuance, which is re-incorporating under the new Act. If you do not have your letters patent and by-laws, Corporations Canada will have them on file.”

A lawyer is not needed for the straightforward not-for-profit, but if the organization’s registration is more complex, then legal advice may be required.

“The Article of Corporation needs to be drafted in Form 4031 and is available on the website,” added Wasserman.

Wasserman also stressed that only two by-laws are mandatory which include the conditions required for membership and notice of meetings to voting members.

“You need to hold meetings in accordance with your current by-laws until you are under the Certificate of Continuance,” said Wasserman. “For a meeting of members for approval, you need to make sure that you get two thirds of the members and not a majority vote.”

Wasserman also stated that if charities do not meet the deadline, there will be an implication, a revocation tax will have to be paid.

The website is Industry Canada with the following link, www.ic.gc.ca/eic/site/cd-dgc.nsf/eng/cs04973.html or Google Corporation Canada Online Transition Guide. Look to the left hand side of the Industry Canada screen to click on Create/Maintain a Not-For-Profit Organization or call 1-866-333-5556.

The process is free and the documents can be faxed, emailed or mailed.

Provincial Bill 65

“On May 12, 2010, Ontario introduced Bill 65, the Not-for-Profit Corporations Act,” said Arden Henry. “Once this bill becomes law, it will replace Part III of the Corporations Act that currently governs Ontario not-for-profit corporations.”

Henry shared the reason why these new acts are coming out for the not-for-profit sector. Simply, it’s because this area is growing.

“The provincial bill is not enforced yet,” said Henry. “With about 46,000 people working for not-for-profits in Ontario, it’s time to modernize the legislation and make it more applicable to what is actually happening.

Henry went on to speak about some of the changes.

“The Provincial Act will apply to non-share capital corporations and also divides groups into eight different categories, so when you are looking at what the changes are, you should be aware of where your group falls. Corporations Act applies to insurance corporations. There are special provisions for a corporations with objects of a social nature and there’s speculation may mean social clubs. If your association falls into that group you will have 5 years to decide which act you want to follow.

The acts are Not-For-Profit Corporations Act, 2010, the Co-operative Corporations Act or the Business Corporations Act.

“The Provincial Corporation Act is not as complicated as the Federal Act because it is one you apply for automatically,” Henry explained. “Once the new act is in force, you should be looking at the by-laws and letter patents to make sure they comply with the new act. You do not need to do a formal application. Any provision not amended to conform after three years is deemed to be amended.”

According to Henry, this new Act will give more rights to the members and enhances corporate governance and accountability, plus provides better protection to directors and officers from personal liability.

“Organizations are now allowed to engage in commercial activities,” said Henry, “only where the revenues are being re-invested in support of the corporation not-for-profit purposes.”

As far as the directors are concerned, there’s a minimum requirement for three directors, resolutions can be passed without having a meeting and only two thirds of all directors need to be members.

Meetings can be held by telephone or electronically and members’ notices are now 10 to 50 days.

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