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Canada Not‐for‐Profit Corporations Act Canadian Chamber of Commerce

Industry Association Business Roundtable

November 21, 2012

Presented by: Thomas A. Houston and Margot Patterson, Fraser Milner Casgrain LLP

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Overview

The Canada Not-for-Profit Corporations Act and what it means for Associations

Process: a suggested transition guide

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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

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The CNCA – what it means for Associations

1. Enhanced Members’ Rights

2. Fundamental Changes

3. Financial Accounting and Disclosure: Soliciting and Non-Soliciting Corporations

4. Directors’ Duties

5. Elimination of Ex Officio Directors

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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

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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

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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

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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

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Financial Accounting & Disclosure

Soliciting 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

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Financial Accounting & Disclosure

Corporation Type / Revenues

Soliciting corporation < $50,000

Non‐soliciting corporation < $1M

Soliciting corporation between $50,000 and $250,000

Soliciting corporation > $250,000

Non‐soliciting corporation > $1M

Defaults, Options for Financial Review

Members may unanimously vote not to appoint a public accountant; can have its financial statements reviewed or audited.

Must have a financial review by a public accountant; can have its financial statements reviewed or audited.

Must have a financial review by a public accountant; must have its financial statements audited.

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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

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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

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2. Process: A suggested transition guide

1. Designate a Committee to work with Management and Legal Counsel

• Governance, Executive, Ad Hoc

2. 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

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Process: A suggested transition guide

3. 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”

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Process: A brief transition guide

1. Prepare Articles of Continuance (transition)

2. Prepare revised by‐laws

3. Obtain Board and Member approval

4. 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)

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Ongoing Corporate Obligations

1. 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

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Ongoing Corporate Obligations

3. 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)

Thank You. Questions? Fraser Milner Casgrain LLP Thomas A. Houston (613) 783-9611 tom.houston@fmc-law.com Margot Patterson (613) 783-9693 margot.patterson@fmc-law.com