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Canada Not-for-Profit Corporations Act


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Presented by FMC’s Tom Houston and Margot Patterson at the Canadian Chamber of Commerce Industry Association Business Roundtable, this presentation looks at the new rules and related implications, roles and responsibilities that arise from the Canada Not-for-Profit Corporations Act.

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Canada Not-for-Profit Corporations Act

  1. 1. Canada Not‐for‐Profit Corporations ActCanadian Chamber of CommerceIndustry Association Business RoundtableNovember 21, 2012Presented by: Thomas A. Houston and Margot Patterson, Fraser Milner Casgrain LLP 1
  2. 2. OverviewThe Canada Not-for-Profit Corporations Act and what it means for AssociationsProcess: a suggested transition guide 2
  3. 3. 1. The CNCA – what it is, what it does• A new framework for the incorporation and governance of Associations and other federal not-for-profits• A comprehensive rule book, modeled on the Canada Business Corporations Act, which includes much of the detail previously required in the by-laws• Replaces Part II of the Canada Corporations Act (1917)• Entered into force October 17, 2011• Gives Associations incorporated under Part II of the CCA until October 17, 2014 to transition to the CNCA to avoid dissolution 3
  4. 4. The CNCA – what it means for Associations1. Enhanced Members’ Rights2. Fundamental Changes3. Financial Accounting and Disclosure: Soliciting and Non-Soliciting Corporations4. Directors’ Duties5. Elimination of Ex Officio Directors 4
  5. 5. Enhanced Members’ Rights• Right of members with 5% of votes to requisition a meeting• Right of voting members to submit notice of a proposal of a matter to be raised at a members’ meeting• Class voting, including: – right of members of a class to special resolution vote – right of non‐voting members to vote separately from voting members on matters that impact their rights• Consider “eliminating” non-voting members 5
  6. 6. Enhanced Members’ Rights• Unanimous member agreement (UMA): – Non-soliciting corporations only – UMA restricts, in whole or in part, the powers of the directors to manage, or supervise the activities and affairs of the corporation – Those given powers under UMA have all the rights, powers, duties and liabilities of a director of the corporation 6
  7. 7. Enhanced Members’ Rights• Remedies to enforce members’ rights: – court‐ordered investigations (to review alleged wrongdoing) – compliance orders (e.g. to share information with members) – “business‐style” derivative action and oppression remedies 7
  8. 8. Fundamental Changes• Fundamental changes require approval by special resolution (2/3rd member vote)• Fundamental changes to Articles or by-laws include: – name of the corporation – corporation’s activities – Corporation’s statement of purpose – conditions of membership or rights of any class/group of members – means of giving notice of a members’ meeting to voting members• Certain fundamental changes affecting a class of members also require a special resolution of that class – e.g. reclassifying or canceling class, changing membership conditions• A director or voting member may propose a fundamental change 8
  9. 9. Financial Accounting & DisclosureSoliciting or Non‐Soliciting Corporation?• “Soliciting corporation” – receives more than $10,000 in a financial year, in the form of: – third party donations, government grants, financial assistance, or donations from another soliciting corporation• “Soliciting corporation” status lasts for three years• “Non‐soliciting corporation” ≠ soliciting corporation• Level of corporate gross revenues relevant to review and reporting 9
  10. 10. Financial Accounting & DisclosureCorporation Type / Revenues Defaults, Options for Financial ReviewSoliciting corporation < $50,000 Members may unanimously vote notNon‐soliciting corporation < $1M to appoint a public accountant; can have its financial statements reviewed or audited. Must have a financial review by aSoliciting corporation between $50,000 public accountant; can have its financialand $250,000 statements reviewed or audited. Must have a financial review by aSoliciting corporation > $250,000 public accountant; must have itsNon‐soliciting corporation > $1M financial statements audited. 10
  11. 11. Directors’ Duties• Directors are subject to the same duty and standard of care as directors of business corporations: an explicit duty to act honestly and in good faith, in the best interests of the corporation, and to exercise the care, diligence and skill of a reasonably prudent person in similar circumstances 11
  12. 12. Elimination of Ex Officio Directors• CNCA does not permit ex officio directors• Does your Association Board include ex officio directors representing: regions? industry sectors? other?• Work-around: – create a class of member with the right to appoint a single director for that constituency (e.g. “Ontario” or “manufacturing”) – however - consider class rights 12
  13. 13. 2. Process: A suggested transition guide1. Designate a Committee to work with Management and Legal Counsel• Governance, Executive, Ad Hoc2. Review current Letters Patent and By-laws• Review objects in Letters Patent to determine if they remain current• Identify by-law provisions which may have been problematic in the past• Consider adding a provision to require nominations for directors to be submitted prior to AGM 13
  14. 14. Process: A suggested transition guide3. In determining the best approach to revising your by-laws, consider the following questions:• Has the Association recently undergone a governance review? If not, good opportunity to do so• Does the Association refer to its by-laws as a “rule book”?• How complex are the Association’s corporate governance structure and processes?4. Choose your option:• Make only the minimum necessary changes to adapt existing by-law to CNCA• Adopt a short by-law, addressing only the few provisions that must be included• Adopt a comprehensive by-law, modeled on CNCA, to act as “rule book” 14
  15. 15. Process: A brief transition guide1. Prepare Articles of Continuance (transition)2. Prepare revised by‐laws3. Obtain Board and Member approval4. File with Industry Canada • the Articles of Continuance (transition) • Registered Office Address • “First” Board of Directors • amended by‐laws (approval of Industry Canada not required) 15
  16. 16. Ongoing Corporate Obligations1. Elections• Minimum of 1 Director (non-soliciting corporation)• Minimum of 3 Directors (soliciting corporation), 2 of whom must not be officers or employees of the corporation• Directors can elect up to 1/3 of Board after AGM (if articles provide)2. Meetings• Meetings of Directors or Members can now be conducted by unanimous written resolution 16
  17. 17. Ongoing Corporate Obligations3. Reporting to Industry Canada• New, simpler reporting: simply file copies of by‐laws, no review/approval process• Key ongoing filing requirements: – annual return – changes in directors and registered office (15 days) – articles (and amendments) – by‐laws (and amendments) – financial statements and accountant’s report (soliciting corporations) 17
  18. 18. Thank You. Questions?Fraser Milner Casgrain LLPThomas A. Houston (613) 783-9611 tom.houston@fmc-law.comMargot Patterson (613) 783-9693