May 2019 Charity & NFP Law Update
Update on the ONCA
The website of the Ministry of Government and Consumer Services is still indicating that the Ontario Not-for-Profit Corporations Act, 2010 (“ONCA”) is targeting to be in force in early 2020. Once the ONCA is in force, the ONCA will automatically apply to all non-share capital corporations incorporated under Part III of the Ontario Corporations Act (“OCA”). Although it is optional for corporations to undertake a transition process within three years of the in force date to amend their governing documents to comply with the rules in the ONCA, it is generally prudent for corporations to undertake the transition process in order to avoid uncertainty of their documents by: (a) filing articles of amendment to amend provisions in their letters patent or supplementary letters patent; and (b) adopting a new ONCA compliant by-law.
For corporations that have simple governance structures (such as where the directors and the members are the same persons, or where the membership is very small), it is possible for them to start preparing for the transition process closer to the in force date, or even during the three-year transition period. However, for corporations that have complex governance structures, multiple classes of members, or unusual governance processes, it would be prudent for them start early in the preparation to ensure that there is sufficient time to finalize the transition documents and obtain membership approval.
By way of background, since the ONCA received Royal Assent on October 25, 2010, the Ontario charitable and not-for-profit sector has patiently waited for it to be proclaimed into force. After various delays and amendments to the ONCA, the Government of Ontario’s most recent indication, as reported in the January 2018 Charity & NFP Law Update, was that it is targeting proclamation in early 2020, and that further details will be provided by the Ministry of Government and Consumer Services closer to the coming-into-force date.
When the ONCA is in force, it will automatically apply to all Part III OCA corporations. Corporations may undertake an optional transition process to bring their governing documents to comply with the rules in the ONCA. If no transition process is taken, any provisions in their letters patent, supplementary letters patent, by-laws, or special resolutions that are inconsistent with the ONCA will be deemed at the end of three years to be amended to comply with the ONCA. The problem with this deeming approach is that it will be difficult to determine which provisions are deemed to be amended and in what way. In order to avoid the deeming uncertainty from arising, it would be beneficial to take the optional transition steps.
BC Public Benefit Companies Introduced through Bill M 209
In May 2018, a private member’s Bill M 216, Business Corporations Amendment Act, 2018 (“Bill M 216”) was introduced and passed second reading in British Columbia, that sought to create a new category of corporations known as “benefit companies” through amendments to the BC Business Corporations Act. Bill M 216 died on the order paper when the BC Legislature prorogued in January 2019. However, the bill was quickly reintroduced in April 2019 as Bill M 209, Business Corporations Amendments Act (No. 2), 2019 (“Bill M 209”) with some minor amendments. Bill M 209 received Royal Assent on May 16, 2019 and will come into force by regulation of the Lieutenant Governor in Council.
Bill M 209 will amend the BC Business Corporations Act by inserting a new Part 2.3 to introduce “benefit companies” as a new category of corporations. As outlined in the August 2018 Charity & NFP Law Update, benefit companies are companies that pursue social and environmental goals, rather than just profit. They must include a “benefit statement” in their articles indicating that “this company is a benefit company and, as such, is committed to conducting its business in a responsible and sustainable manner and promoting one or more public benefits”. Bill M 209 defines “public benefit” to mean “a positive effect, including of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature, for the benefit of (a) a class of persons, other than shareholders of the company in their capacity as shareholders, or a class of communities or organizations, or (b) the environment, including air, land, water, flora and fauna, and animal, fish and plant habitats.” Benefit companies must also include a provision in their articles that specifies the specific public benefits they will promote, and sets out commitments to conduct their business in a “responsible and sustainable manner” and to promote their specified public benefits. A BC company may become a benefit company by special resolution of its shareholders to alter its notice of articles to include the benefit statement. Similarly, when ceasing to be a benefit company, a special resolution of its shareholders will be required.
While Bill M 209 contains the same general key features as the previous Bill M 216, some amendments have been made to those provisions. For example Bill M 209 no longer contains the proposal to require a company to change its name to include “Benefit Company” or “B.Co.” upon becoming a benefit company.
Once in force, BC will be the first jurisdiction in Canada to provide a legal framework for benefit companies to pursue social and environmental goals, rather than just profit. As a form of social innovation, benefit companies will allow for mission-focused companies in BC to focus on their social missions, while simultaneously growing their capital by providing investors with certainty about the mandate of the company.