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- The Changing Landscape for Not-for-Profit in Canada
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- Status and Overview of CNCA
- Status and Overview of ONCA
- Essentials Things to Know About the CNCA and ONCA
- Timing of Continuance/Transition
- Practical Steps
- For a brief overview of the CNCA and ONCA, see “What’s New in the
Governance of Not-for-Profit Corporations? (CNCA/ONCA)” at: (http://www.carters.ca/pub/article/charity/2012/tsc0607.pdf)
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- Canada Not-for-Profit Corporations Act (“CNCA”) enacted on June 23,
2009, in force October 17, 2011
- Replaced Part II of Canada Corporations Act (“CCA”)
- The new rules do not apply automatically to CCA corporations
- Existing CCA corporations required to continue under the CNCA within 3
years - i.e., until October 17, 2014
- Failure will result in dissolution of the corporation
- See Industry Canada’s website for resources: http://strategis.ic.gc.ca/eic/site/cd-dgc.nsf/eng/h_cs03925.html
- See paper by Theresa Man “Working With The CNCA: Incorporation and
Continuance.” April 2013, http://www.carters.ca/pub/article/charity/2013/tlm0408.pdf
- See Charity Law Bulletins Nos. 191, 193, 199, 213, 215, 220, 231, 239,
247 for practice tips
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- This means all existing CCA corporations will need to
- Review letters patent and by-laws
- Prepare Articles of Continuance, Notice of Directors and Registered
Office, and new By-laws
- Get membership approval - Articles must be approved by 2/3 vote of
members
- File required documents with Industry Canada, no filing fee
- Industry Canada will issue a Certificate of Continuance
- Need to file approved new By-laws within 12 months of adoption
- Charities – send Certificate of Continuance, Articles of Continuance
and new By-law to CRA
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- The Ontario Corporations Act (“OCA”) has not been substantively amended
since 1953
- The New Ontario Not-for-Profit Corporations Act, 2010 (“ONCA”) will
apply to OCA Part III corporations
- ONCA received Royal Assent on October 25, 2010
- Ministry of Government Services - will be responsible for searches and
filing
- Ministry of Consumer Services - will be responsible for remaining areas,
including policy and interpretation issues
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- ONCA was expected to be proclaimed in force on July 1, 2013
- Minister announced on March 28, 2013:
- Will delay proclamation of the ONCA to a date no earlier than January
2014
- Will review the ONCA after proclamation to determine if amendments are
necessary - priority to reviewing enhancement of membership voting
rights
- “Exploring the possibility” of delaying proclamation of provisions
giving voting rights to non-voting members for 3 years after
proclamation
- Check Ministry’s website for update http://www.sse.gov.on.ca/mcs/en/Pages/Not_For_Profit.aspx
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- Transition checklist available on Ministry’s website http://www.sse.gov.on.ca/mcs/en/Pages/onca4.aspx
- Other resources also available (key terms, frequently asked questions) http://www.sse.gov.on.ca/mcs/en/Pages/Not_For_Profit.aspx
- Default by-laws, plain language guide, electronic tool kits will be
available
- Regulations to be released - outline of proposed regulations released on
July 16, 2012, for public comment
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- Unlike the CNCA
- Optional transition process for corporations to file articles of
amendments or adopt new by-laws to comply with ONCA requirements within
3 years of ONCA in force
- If no transition process taken, then
- Corporation will not be dissolved
- LP, SLPs and by-laws will be deemed amended to comply with new ONCA
requirements, resulting in non-compliant provisions deemed invalid
- Will result in uncertainty in relation to which provisions remain to
be valid
- Better to do transition process in order to avoid confusion in
interpreting by-law provisions
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- Social clubs with share capital will have 5 years to continue in order
to come under the ONCA, the Ontario Business Corporations Act and the Co-operative
Corporations Act
- See Charity Law Bulletin No.262 “The Nuts and Bolts of the Ontario Not-For-Profit
Corporations Act, 2010”, as well as Charity Law Bulletin No.299 “Transitioning
Under the New Ontario Not-For-Profit Corporations Act, 2010: Practical
Considerations” on our website at www.charitylaw.ca
- To view ONCA in its entirety, see: http://www.ontla.on.ca/web/bills/bills%20_detail.do?locale=en&Intranet=&BillID=2347
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- This means that all OCA corporations within three years of proclamation
will need to
- Review letters patent and by-laws
- Prepare Articles of Amendment and new By-laws
- Get membership approval
- File required documents
- Certificate of Amendments will be issued
- Charities - send Certificate of Amendments, Articles of Amendments and
new By-law to CRA
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- Incorporation as of Right
- Incorporation as of right under CNCA and ONCA
- Obtain certificate of incorporation, not letters patent
- Simpler and faster process
- One or more persons can be incorporators
- Replaces the letters patent system with a statutory regime
- Removes ministerial discretion to incorporate
- Corporation has the capacity, rights, powers and privileges of a natural
person
- Eliminates the concept of a corporation’s activities being ultra vires
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- Corporations that Receive Public Funding
- Corporations that receive public funding are subject to special
requirements
- Different rules in the CNCA and ONCA
- CNCA - Soliciting and Non-soliciting Corporations
- Where a corporation receives more than the prescribed amount [$10,000]
in its last financial period from public sources [(a) public donations,
(b)federal, provincial and municipal governments or (c) conduit
entities], it will become a soliciting corporation
- Status starts from the next AGM for 3 years
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- Implications of being a soliciting corporation
- Must have a minimum of 3 directors, at least 2 of whom are not
officers or employees of the corporation or its affiliates
- Required to file annual financial statements with the Industry Canada
- Audit and public accountant rules more stringent (see later in
presentation)
- On liquidation, the articles must provide for the distribution of any
remaining property on dissolution to qualified donees (e.g. registered
charities, governments in Canada, the United Nations etc.)
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- ONCA - Public Benefit Corporations (PBC)
- PBCs include
- Charitable corporations - common law definition
- Non-charitable corporations that receive more than $10,000 in a fiscal
year in funding from public donations, the federal or provincial
governments, or a municipality or agency
- When a non-charitable corporation reaches the $10,000 threshold, the
PBC status won’t attach until the first annual meeting of members in
the next fiscal year
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- Consequences of being a PBC
- Not more than one-third of the directors of a PBC may be employees of
the corporation or of any of its affiliates
- Higher thresholds for dispensing with the auditor and/or review
engagement requirements (see later in presentation)
- On liquidation, the articles must provide for the distribution of any
remaining property on dissolution
- Charitable corporation - to a charitable corporation with similar
purposes to its own or to a government or government agency,
- Non-charitable corporation - to another PBC with similar purposes or
to a government or government agency
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- Low threshold means many corporations may become soliciting/PBC
corporations
- Solution?
- Monitor funding sources and quantum to see when a change in status may
occur, or
- Voluntarily be structured as a soliciting/PBC corporation
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- Public Accountant and Financial Review
- CNCA
- Corporations divided into two categories
- “Designated corporations”:
- A soliciting corporation with gross annual revenues for its last
completed financial year that is equal to or less than $50,000 or that
is deemed to have such revenues under the CNCA
- A non-soliciting corporation with gross annual revenues for its last
completed financial year that is equal to or less than $1 million
- “Non-designated corporations” are soliciting and non-soliciting
corporations with annual revenues in excess of these amounts
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- ONCA
- PBCs are subject to higher thresholds for dispensing with the auditor
and/or review engagement
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- Directors – Number and Change
- CNCA
- Minimum 1 director
- For soliciting corporations - minimum 3 directors, at least 2 of whom
are not officers or employees of the corporation or its affiliates
- Articles may provide a maximum and minimum range
- ONCA
- Minimum 3 directors
- For PBCs - not more than one-third of the directors may be employees of
the corporation or of any of its affiliates
- Articles may provide a maximum and minimum range
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- Directors Taking Office
- CNCA
- Elected by members by ordinary resolution at an annual meeting
- Maximum 4 year term (but no limit on number of maximum terms)
- Ex-officio directors not permitted, need to find “work arounds”
- May have staggered terms
- Articles can provide for appointment of directors by board (up to 1/3
of those elected at previous AGM)
- A director must be present when elected or sign a consent
- May be removed ay anytime by a majority vote of members
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- ONCA
- Elected at meetings of members
- Board may appoint one or more additional directors up to 1/3 of the
number of elected directors to hold office until the next AGM
- Ex-officio directors continue to be permissible
- Directors are no longer required to be corporate members
- Maximum 4 year term (but no limit on number of maximum terms)
- May have staggered terms
- Directors must sign a consent
- May be removed at anytime by majority vote of members
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- Directors and Officers – Powers, Duties and Defence
- Similar rules in CNCA and ONCA that state “subject to the Act, the
directors shall manage or supervise the management of the activities and
affairs of the corporation”
- Every director and officer has a duty to comply with the CNCA/ONCA,
regulations, articles and by-laws
- Directors may borrow money on the credit of the corporation without
members’ authorization, unless articles or by-laws provide otherwise
- Directors may view certain corporate records that the corporation is
required to prepare and maintain (e.g. meeting minutes, accounting
records, members’ resolutions, etc.) and receive free extracts of them
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- Objective standard of care for directors and officers to:
- Act honestly and in good faith with a view to the best interests of the
corporation
- Exercise the care, diligence and skill that a reasonably prudent person
would exercise in comparable circumstances
- Objective standard of care replaces common law subjective standard of
care
- Reasonable diligence defence for directors (not officers)
- Not liable if fulfilled their duty if they exercise the care, diligence
and skill that a reasonably prudent person would have exercised in
comparable circumstances
- Defence includes good faith reliance on financial statements and
reports of professionals
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- Members
- Both CNCA and ONCA generally provide the same principles but different
detailed rules
- A corporation must have members
- Can have
- One class of members in which case all are voting
- Two or more classes as long as articles give right to vote to at least
one class
- Where more than one class, the members of each class have certain built
in protections
- All classes of members, even non-voting classes of members, are entitled
to vote separately as a class on certain amendments to articles and
by-laws dealing with rights and classes of membership
- Under the ONCA, Ministry has announced that it is “exploring the possibility” of
delaying the new rights for non-voting members until at least three
years after proclamation
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- For CNCA (and possibly ONCA after delayed proclamation of rights)
non-voting members will be given voting rights in limited circumstances,
e.g.,
- Extraordinary sale
- Amalgamation
- Continuance to another jurisdiction
- Change to any rights or conditions attached to those non-voting members
or a change in the rights of other classes of members relative to the
rights of the non-voting members
- Thus a class of members could reject a change - effectively resulting in a class
veto (limited opt-out available)
- Corporations wanting maximum flexibility will generally opt to have only
one class of members
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- Some corporations may want to collapse all membership classes into one
class or change non-voting membership classes into “supporters”,
“adherents” or other non-member type of name
- Timing of such changes will be important for CNCA, since non-voting
members will have the right to vote on continuance unless they are
removed before application for continuance
- Default rules to terminate membership and member’s rights apply unless
articles or by-laws state otherwise
- Upon death, resignation, expiry of membership term, liquidation or
dissolution of the corporation, expulsion, or termination of membership
in accordance with the articles or by-laws
- Rights terminated upon termination of membership
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- Articles or by-laws may give directors, members or a committee the power
to discipline members or terminate the membership, provided that the
circumstances and the manner of such power is set out in the article or
by-law
- ONCA also requires that disciplinary action or termination be done in
good faith and in a fair and reasonable manner
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- Members’ Meetings
- CNCA
- Regulations provide a variety of prescribed means of giving notice of
members’ meetings
- Default rule is to vote in person, unless participate in meeting
electronically
- By-law can set out any prescribed method of absentee voting (mail in
ballot, electronic voting or proxy)
- May participate in members’ meetings by electronic means
- Proxy voting need not be limited to members
- By-laws can provide for consensus decision making
- Right to requisition a meeting of members (5% members)
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- ONCA
- Every member entitled to vote at a meeting may appoint a proxyholder
who does not have to be a member
- By-laws may provide for three other methods of voting for persons who
cannot be present at a meeting in addition to or as an alternative to
proxies: by mail, telephone, or by computer (electronic means)
- Right to requisition a meeting of members (10% members)
- No longer requires notice be sent by mail, but notice must be given 10
to 50 days before the meeting
- May participate in members’ meetings by electronic means
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- Members’ Rights
- CNCA
- Right of any member to submit proposals to amend by-laws, or require
any matter to be discussed at annual meetings, or nominate directors
(5% member) [nominations can also be made at the meeting]
- Right to access corporate records, but not director minutes
- May sign resolutions in writing
- Availability of unanimous members’ agreement (except for soliciting
corporations)
- Default one vote per member, unless articles provide otherwise
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- ONCA
- Subject to possible future amendments by Minister with regard to
members voting rights, any member entitled to vote at an annual meeting
may raise any matter as a “proposal” but must give 60 days notice
- A proposal may include nominations for directors if signed by at least
5% of members or such lower percentage set out in the by-laws
(nominations can also be made at the meeting)
- Proposal must relate in a significant way to the activities and affairs
of the corporation
- Directors can refuse to discuss the proposal if they give at least 10
days notice, but a member may appeal the refusal decision to court
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- Members may requisition meetings of the members (but need 10% of the
votes to do so, or lower if the by-laws so states)
- Right to access membership lists - to include name and address, by-laws
may provide for more information
- Right to inspect financial records
- There are certain minimum rights in the event of a disciplinary action
or termination of membership (e.g. a fair and reasonable process)
- Default 1 vote per member, unless articles provide otherwise
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- Members’ Remedies
- CNCA
- Right to seek an oppression remedy against the corporation where
members allege that they have been approved
- Right to seek a court order to commence a derivative action on behalf
of the corporation
- Restraining orders against the corporation, directors or officers
- Court ordered wind-up and liquidation on application of a member
- Court ordered investigation
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- ONCA
- Compliance Order - where a corporation, or its directors and officers,
fails to comply with the duties set out in the ONCA and regulations,
the articles or by-laws
- Rectification Order - if the name of a person has been wrongfully
entered, retained, deleted or omitted from the registers or records of
a corporation, that person may apply to a court for an order rectifying
the registers or records
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- Derivative Action - gives members the right to bring an action in the
name of the corporation (except religious corporations) to enforce one
of its rights
- Dissent and Appraisal Remedy - the right to a dissent and appraisal
remedy is limited to corporations that are not public benefit
corporations
- Investigation Order - a member (or holder of debt) may apply to the
court for an investigation of the corporation
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- Special Exemption for Religious Corporations
- CNCA
- Precludes the members’ remedies referred to above, where the court
determines that:
- The corporation is a “religious corporation” - but not defined
- The act or omission, conduct or exercise of powers is based on a tenet
of faith held by the members of the corporation, and
- It was reasonable to base the decision on a tenet of faith, having
regard to the activities of the corporation
- ONCA
- “Religious corporations” are exempt from derivative action
- But again no definition of “religious corporation”
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- Amalgamations
- CCA corporations, once continued under the CNCA, will be able to
amalgamate with one another
- Amalgamations between CNCA and ONCA corporations (as well as other
jurisdictions) will also be possible
- Change of Jurisdiction
- Possible for a corporation from another jurisdiction to be imported and
continue as a CNCA or ONCA corporation
- Possible for a CNCA/ONCA corporation to be exported and continued as a
corporation under another jurisdiction
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- By-laws
- CNCA - by-laws no longer required to be approved by Industry Canada, but
must be filed with Industry Canada within 12 months, but failure to file
will not affect validity
- ONCA - no need to file by-laws with the Ministry
- Default by-law will apply if no by-law adopted
- Audit Committee
- Special rules about committee members, right of public accountant to
attend or call committee meetings
- e.g. Majority of committee members must not be officers or employees of
the corporation or of any of its affiliates
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- Conflict of Laws
- ONCA must be read in conjunction with applicable charity law - explicit
concept in ONCA
- If there is a conflict between the ONCA or its regulations and a
provision made in any other legislation that applies to the following
- A non-share capital corporation, then the provision in the other
legislation prevails (including special legislation)
- A charitable corporation, then the
legislation applicable to charitable corporations prevails
- As such, some provisions of the ONCA will not apply to charities
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- ONCA permits directors to fix their remuneration and to receive
reasonable remuneration and expenses for any services they provide to
the corporation in any other capacity
- Common law rule overrides the ONCA - prohibits directors a charity to
receive direct and indirect remuneration from the charity
- But directors may be reimbursed out-of-pocket expenses
- Possible to seek PGT consent court order to permit directors be paid,
but generally high threshold for such an order
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- ONCA permits directors and officers to enter into contracts or
transactions with the corporation as long as they disclose any conflict
of interest that may exist
- Common law rule overrides the ONCA - prohibits directors of charities
to place their personal interests in conflict with their duty to the
charity
- Regardless of whether there is actual loss to the charity
- Possible to seek PGT consent court order to permit directors be paid,
but generally high threshold for such an order
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- ONCA permits corporation to invest its funds as its directors think fit,
subject to its articles or by-laws or any limitations accompanying a
gift
- Section 10.1 of the Charities Accounting Act overrides the ONCA -
states that s.27 to s.31 of the Trustees Act applies
- Prudent investor rule applies to the directors of charities
- Directors must consider certain criteria to invest
- Authorizes delegation to an agent in certain circumstances but must
have investment policy and agency agreement in place
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- ONCA permits corporation to indemnify the directors and officers and to
purchase insurance
- ONCA expressly requires that the purchase of insurance be in compliance
with the Charities Accounting Act and its regulations
- Regulation 4/01 under the Charities Accounting Act requires directors
to consider certain factors enumerated in the regulation before they
consent to the indemnification of its directors or purchasing D&O
insurance
- The indemnification or the purchase of insurance must not render the
corporation insolvent
- CNCA is silent on all of these issues but it is likely the same approach
would apply
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- Some corporations will want to continue/transition right away after the
applicable legislation becomes effective, others may want to wait
- Revising governance structure to be reflected in new by-law may need
some time for directors and members to consider
- Some considerations
- Collapse of multiple membership structure
- Increased director protection
- Existing by-laws already require amendment
- Contemplation of fundamental changes
- Different levels of financial review
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- Collect Governing Documents
- Letters patent, supplementary letters patent
- Locate all copies
- Amendments made by board or members resolutions alone not valid, must
have SLP issued
- CCA corporations - can contact Industry Canada to obtain copies
- OCA corporations - can obtain microfiche copies from Ministry
- All current by-laws, including amendments, corporate minutes
- Other governance related documents: organizational charts, policies,
manuals
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- Review Governing Documents and Consider
- Do they reflect current governance structure? If not, what is current
governance structure?
- Do they reflect current governance process? If not, what is current
governance process?
- Are changes desired? What are they?
- Are there new provisions to be inserted? What are they?
- Write them down
- Come up with a wish list
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- Understanding the CNCA and ONCA Framework
- Rules in the Act
- Details in the Regulations: “prescribed” vs “regulations”
- CNCA also permits unanimous member agreement for non-soliciting
corporations
- Need to refer back and forth between the Act, the Regulations, articles,
by-laws and unanimous member agreement
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- Study the Key Features of the CNCA/ONCA and Consider
- Are your current by-laws or desired governance structure and process
inconsistent with CNCA/ONCA statutory requirements?
- If inconsistent with statutory mandatory requirement, must comply with
them
- If inconsistent with CNCA/ONCA default requirements, is the preferred
option permitted under the CNCA/ONCA? Should the option be set out in
the articles or by-laws?
- If CNCA/ONCA optional requirements provided, may choose one of the
permissible options - Should the option be set out in the articles or
by-laws?
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- Drafting New By-laws
- By-laws will need to be replaced or substantially revised because the
old and new rules are very different
- Minimalist approach by-laws
- Rationale: CNCA & ONCA and regulations contains detailed rules, so
by-laws not to duplicate mandatory rules or default rules that are not
to be overridden
- Comprehensive approach by-laws
- One stop approach - consolidation of all applicable rules
- No need to flip back and forth between articles, but limited provisions
in the articles
- Can have governance policy manuals to address other matters, e.g.,
committee structures (but not audit committee)
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- General Points
- Industry Canada have continuance tools available, e.g.,
- Model by-laws (minimalist approach) and by-law builder
- Guides for transition, operation and incorporation
- Sample Articles of Continuance
- Ontario Ministry will have continuance tools available, e.g.,
- Plain language guides
- Default by-laws
- Updating the Not-for-Profit Incorporator’s Handbook
- Information sheets
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- Some changes may only be administrative
- Some changes may require detailed considerations and consultation with
members
- Have someone or a small committee be responsible for the process
- Have the board engaged in the process early on
- Seek legal help to conduct legal review and prepare draft by-laws and
articles as required
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