A. INTRODUCTION
On May 17, 2010, Bill
65, also known as Ontario’s proposed Not-for-profit Corporations
Act (the “ONCA” or the “Bill”), was debated at the second
reading stage in the Ontario Legislature. The ONCA previously
passed its first reading on May 12, 2010. It will replace
the Corporations Act, which currently regulates Ontario’s
not-for-profit corporations. The ONCA represents
a significant improvement for Ontario non-share corporations
and will, if passed, bring the Ontario non-share corporate
laws into conformity with modern corporate statutes across
the country.
In a press release issued
May 12, 2010, the Ministry of Consumer Services indicates
that Bill 65 will provide Ontario’s 46,000 not-for-profit
corporations with a “modern legal framework to enhance corporate
governance and accountability, simplify the incorporation
process, give more rights to members, and better protect
directors and officers from personal liability.”
This Charity Law
Bulletin provides a glimpse of some of the highlights
of Bill 65.
B. HIGHLIGHTS OF BILL 65
The ONCA provides for a system of incorporation
“as of right” and replaces the current letters patent system
which is subject to the discretion of the Minister. The
Bill allows one or more individuals and/or corporations
to file for articles of incorporation, thus allowing a single
charitable corporation, for instance, to be the incorporator
for its parallel foundation. Upon receipt of the required
documentation and fees, the Director under the ONCA must
issue a certificate of incorporation. Instead of the current
timing of 6-8 weeks to incorporate a non-share corporation
in Ontario, it is anticipated that incorporation under the
ONCA will take a matter of a few days.
If a corporation fails to pass organizational
by-laws within 60 days after it is incorporated, it will
be subject to default organizational by-laws approved by
the Director. The corporation may amend or repeal these
“default” by-laws at any time.
Under the Bill, corporations are given
the capacity, rights and powers of a natural person, subject
to any limitation in the ONCA or in the corporation’s articles.
For those interested in social enterprise, it is of worth
noting that the corporation’s purposes may include those
of a commercial nature, but if they do, the articles must
state that the commercial purpose is intended only to advance
or support the non-profit purposes of the corporation.
Consistent with the current law, a corporation
must have a minimum of three (3) directors and the directors
must be elected at a meeting of members. However, if the
articles permit, the board may appoint one or more additional
directors as long as the total number appointed does not
exceed one-third of the number of directors elected at the
previous annual meeting of members. Of particular note,
and unlike the Canada Not-For-Profit Corporations Act,
the Bill specifically permits ex-officio directors
or “directors by virtue of their office”. At least 2/3 of
the directors must be members of the Corporation, regardless
of whether the by-laws otherwise require. This is a change
from the current law which requires all directors to be
members. The Bill also requires that no more than one-third
of the directors of a “public benefit corporation” may be
officers or employees of the corporation or its affiliates.
A public benefit corporation is defined generally as a charitable
corporation or a non-charitable corporation that receives
more than $10,000 in a financial year from public sources,
including grants and other assistance from government.
The ONCA provides for an objective standard
of care for directors which mirrors the objective standard
provided under modern corporate statutes across the country.
The ONCA also establishes a due diligence defence and gives
directors the right to dissent. However, it does not significantly
limit personal liability of directors unlike Saskatchewan’s
Non-Profit Corporations Act, 1995.
Where membership is concerned, the Bill
requires the by-laws to set out the conditions required
for being a member, The Bill also specifically permits the
by-laws to provide for persons to be members by virtue of
office. If the articles provide for two or more classes
of members, the by-laws must provide the conditions for
membership in each class, the manner of withdrawing or transferring
from membership and the conditions on which membership in
a class ends. In addition, the articles or by-laws may contain
provisions regarding the discipline of members. The ONCA
contains detailed provisions relating to membership proposals,
members’ meetings and voting.
There are a number of remedies available
under the Bill. By way of example, the Bill allows a current
or former member, officer or director to apply to the court
to commence a derivative action where the directors have
failed to prosecute or defend an action on the corporation’s
behalf. In addition, a member who dissents from a decision
by the corporation to make a fundamental change is given
the right to object to the decision and to have the member’s
interest terminated on payment of the membership interest
in the corporation. Further, a current or former member,
officer or director or a creditor may apply to court for
a compliance or restraining order where the corporation
is not in compliance with the ONCA, the regulations, articles
or by-laws.
It should be noted that a special resolution
of members is required to authorize most fundamental changes
under the ONCA. Where there is more than one class of members,
each class of members is entitled to vote separately as
a class to approve certain changes affecting their class
of membership by special resolution (regardless of whether
the class of members otherwise has the right to vote).
The Bill contains comprehensive
dissolution and winding up provisions. The rules relating
to distribution of remaining property by a corporation on
dissolution will depend generally on whether the corporation
is a public benefit corporation, a charitable corporation
or non-charitable corporation.
Part VII of the ONCA
addresses the appointment of the auditor and level of financial
review required of corporations under the ONCA. Subject
to Section 75, the members are required to appoint an auditor
at the annual meeting or a person to conduct a review engagement
of the corporation. Section 75 of the ONCA, allows the members
of a public benefit corporation to pass an “extraordinary
resolution” as explained below to have a review engagement
instead of an audit if the corporation had annual revenues
in its financial year of more than $100,000 and less than
$500,000. The members of a public benefit corporation may
also pass an extraordinary resolution to dispense with the
appointment of an auditor and to not have an audit or review
engagement but only if the corporation had annual revenues
in its financial year of $100,000. Where a corporation is
not a public benefit corporation the members may pass an
extraordinary resolution to have a review engagement instead
of an audit if the corporation had annual revenues in its
financial year of more than $500,000. The members of corporation
that is not a public benefit corporation may also pass an
extraordinary resolution to dispense with the appointment
of an auditor and to not have an audit or review engagement
if the corporation’s annual revenue in its financial year
is $500,000 or less. Note that the Regulations under the
ONCA may prescribe different amounts than those stated in
the ONCA.
An extraordinary resolution
under this section of the ONCA is one that is approved by
at least 80% of the votes cast at a special meeting of members
or consented to by each member of the corporation entitled
to vote at a meeting of members. An extraordinary resolution
only has effect for one year until the next annual meeting
of members.
For more information,
see Bill 65 available online at http://www.ontla.on.ca/web/bills/bills_detail.do?locale=en&BillID=2347&detailPage=bills_detail_the_bill,
Ontario’s current Corporations Act available at http://www.e-laws.gov.on.ca/html/statutes/english/elaws_statutes_90c38_e.htm,
and The Ministry of Consumer Services’ Press Release available
at http://www.sse.gov.on.ca/mcs/en/Pages/
News_12May2010.aspx.
