A. INTRODUCTION
Following the announcement by Ontario’s Ministry of
Consumer Services at the end of March 2013, delaying the proclamation of the
Ontario Not-for-Profit Corporations Act, 2010 (“ONCA”) from July 1, 2013, to January 2014 at the earliest, new amendments to
the ONCA embodied in Bill 85 were released on June 5, 2013. These new proposed changes to the ONCA will have
significant impact on the application of the ONCA to Ontario corporations.
Bill 85 proposes technical amendments to a number of
corporate law statutes, including the ONCA and the Corporations Act (“OCA”), Business Corporations Act, the Business Names Act, the Corporations Information Act,
the Extra-Provincial Corporations Act, the Limited Partnerships Act,
as well as 79 other Acts consequential to the ONCA. The majority of the
amendments are of an administrative nature or are to ensure consistent wording
across the various statutes. Some more substantive amendments are also made,
including amendments to the OCA that are complementary to the ONCA. The
Ministry’s June 5, 2013, email announcing the release of Bill 85 states that
proclamation of the ONCA cannot proceed without these legislative amendments.
It also states that Bill 85 will enable the government to deliver on its
commitment to modernize the legal framework that will govern the not-for-profit
sector.
This Bulletin highlights key amendments
to the ONCA proposed by Bill 85, some of which may prove problematic to not-for-profit corporations in Ontario. Proposed amendments to other statutes are
outside the scope of this Bulletin.
B. AMENDMENTS TO THE ONCA
Proposed amendments to the ONCA are set
out in Schedule 7 of Bill 85. The following is an overview of some of the key
proposed amendments.
1. Threshold to be Public Benefit Corporations
Currently, the ONCA provides that non-charitable
corporations that receive more than $10,000 in a financial year from specific
public sources will become public benefit corporations. The ONCA is proposed to be amended so that the threshold amount may also be
prescribed by regulation. This is a welcome approach so that the threshold amount
could be adjusted from time to time without the need to amend the ONCA.
2. Consents to be a Director must be in Writing
The ONCA now requires that an individual
who is elected or appointed to be a director must consent to hold office within
10 days after the election or appointment; and if consent is provided after 10
days, it must be in writing. The ONCA is proposed to be amended to require all consent to be in writing. Further,
the ONCA is proposed to be amended to require every corporation to keep
directors’ consents in the ‘approved form’.
3. Amendments of Governing Documents during Transition
Period
Part III OCA corporations are not required to take any action
in order to come under the ONCA. The ONCA will apply automatically to all Part
III OCA corporations upon proclamation. However, provisions in their governing
documents that are inconsistent with the ONCA will
continue to be valid for three years after proclamation. These
provisions will be deemed at the end of three years to be amended to comply
with the ONCA. The problem with this approach is that it will become difficult
to determine what provisions are deemed to be amended and in what way.
In order to avoid such uncertainty from arising, Part III OCA
corporations may transition into the ONCA during the three-year period by
filing articles of amendment and adopting new by-laws to amend any provision in its letters patent, supplementary letters patent,
by-laws or special resolution that are not consistent with the requirements of
the ONCA in order to bring those provisions into conformity with it. Although
this process is optional, it is generally advisable for Part III OCA
corporations to transition under the ONCA during the three-year period in order
to avoid uncertainty concerning the interpretation of its constating documents.
However, amendments proposed by Bill 85 will, in effect, make this process
mandatory.
Bill 85 now proposes to include a new requirement that any provision or portion of a provision in a by-law or special
resolution that is required by the ONCA to be contained in the corporation’s
articles must be added to the articles during the transition period, failing
which they will become invalid when the transition period ends. It is still not clear
what information will be required to be included in the articles. However, it
is clear that, at a minimum, the classes of membership and number of directors
on the board will be required to be included in the articles. At this time,
this type of information is usually set out in by-laws. Furthermore, OCA
corporations are also permitted to change the number of directors by way of
special resolutions. If these corporations do not file articles of amendment
during the transitional period, it is not clear what impact it may have if
these provisions are no longer valid. The practical effect of this new
requirement would mean that all Part III OCA corporations would have to file
articles of amendment to avoid any such provisions becoming invalid at the end
of the transition period. This would seem to defeat the original intent of the
ONCA to have the transitional process an optional one in order not to cause
hardship to the sector.
Furthermore, Bill 85 also proposes to include a new
requirement that if a corporation was to file articles of amendment to amend
its letters patent during the transition period, it may do so only if it also
makes all amendments that may be necessary to bring it into conformity with the
ONCA. Similarly, if a corporation was to amend its by-law or special resolution during
the transition period, it may do so only if it also makes all amendments that
may be necessary to bring the by-law or resolution into conformity with the
ONCA, including the removal of any provision required by the ONCA to be
contained in the articles and not in the by-laws or special resolution. This new requirement would mean that corporations will not be able to amend their
by-laws or special resolutions a number of times over the transition period to
slowly bring them into compliance. It is not clear what the rationale is for
this all-or-nothing approach. It is a concern that these new requirements may have
an unintended onerous effect on the sector.
4. Membership Class Votes
The ONCA now provides extensive rights to members of
corporations. In addition to the rights to elect and remove directors, they may
make proposals, requisition meetings of members, as well as vote on certain
amendments to the articles and fundamental changes. The latter may pose some
concern to corporations that have multiple membership classes. In this regard,
where there is more than one class of members, the ONCA provides that each
class of members ( both voting and non-voting classes) is entitled to vote
separately as a class to approve certain changes affecting their class of
membership or certain fundamental changes (such as amalgamation) by special
resolution. As such, each class of members (including non-voting members) will,
in practice, have a de facto class veto right. Therefore, corporations
that currently have multiple membership classes may wish to consider collapsing
all of the classes into one voting class if they want to avoid non-voting
members having the right to vote by class or avoid membership classes (both
voting and non-voting) having any class veto rights.
The announcement by the Minister of Consumer Services in
late March 2013 to delay proclamation of the ONCA was in part, as stated in a
memorandum dated March 28, 2013, from the Assistant Deputy Minister, Frank
Denton, to the Advisory Committee Members for the ONCA, to allow more time to
“[explore] the possibility of holding back from proclamation the provisions of
the ONCA giving voting rights to non-voting members in certain limited
circumstances.” In a letter dated March 27, 2013, from the Minister of Consumer
Services, Tracy MacCharles, to the Ontario Nonprofit Network, she indicated
that she will be “recommending that these provisions not come into force for at
least three years following proclamation.” The Minister also indicates that she
intends to “undertake a thorough consultation across the sector to assess how
this issue should be addressed.”
The ONCA is now proposed to be amended so that provisions giving
non-voting classes of members the right to vote will not come into effect until
at least three years after the rest of the ONCA comes into effect. The right of voting members to class votes has not been delayed.
The practical effect of this proposed amendment would mean
that non-voting members will not have the right to vote during at least the
three year transition period for Part III OCA corporations. If these
corporations want to adopt articles of amendment or new by-laws during the
transition period (to collapse their membership classes, for example), they
would not be required to seek class approval of their non-voting members.
However, corporations that have multiple voting membership
classes that want to collapse their membership classes (or engage in certain
fundamental changes) during the transition period will have to seek class
approval of each of their voting membership classes. This is because the right
of voting members to vote by classes under the ONCA will come into effect on
proclamation of the ONCA and will apply automatically to all Part III OCA
corporations. As such, unless their OCA governing documents
clearly provide that different voting membership classes are not permitted to vote
separately by class or that all voting members must vote together as one pool
of members, the class vote provisions under the ONCA will apply to all
corporations upon proclamation of the ONCA. Since different voting classes of
members did not have the right under the OCA to vote separately by class, it is
doubtful whether the required provisions to override the automatic application
of class vote rights would be contained in governing documents of existing OCA
corporations. The fact that the proposed amendments do not also delay
proclamation of class vote rights for voting members means that corporations
that want to collapse their multiple voting membership classes but do not want
to seek approval from each voting class will need to do so prior to the
proclamation of the ONCA.
C. CONCLUSION
The Ministry’s June 5, 2013, email
announcing the release of Bill 85 states that stakeholders broadly support the
ONCA and the proposed amendments contained are not controversial. It is true
that many of the proposed amendments to the ONCA are welcome changes, such as allowing
the $10,000 threshold to be changed by regulation from time to time and
delaying class voting rights of non-voting members for at least three years
after proclamation of the ONCA. However, not delaying class voting rights of
voting members in a similar manner will continue to be problematic for the
corporations that currently have multiple voting membership classes. As well,
the new requirement on corporations to file articles of amendment during the
transition period to include provisions required by the ONCA in the articles
and the new prohibition on corporations from amending their constating
documents during the transition period unless they also bring those documents
into conformity with the ONCA will have significant negative impact on the transition
process of Ontario corporations. It is hoped that Bill 85 will be amended to
address the concerns.
