Dr. Cathy Barr, Director, Insurance and Liability Resource Centre Imagine Canada

Social Economy ConferenceMay 1, 2008

Modernization of Ontario Not-for-Profit Corporations Law

2

Overview

1. What is the Corporations Act and why does it need to need to be

modernized?

2. Public consultation process and timeline for drafting legislation

3. Imagine Canada & the Task Force on Not-for-Profit Corporation

Law Reform.

4. Task Force recommendations

> Consultation Paper 1

> Consultation Paper 2

3

What is the Corporations Act?

• An Ontario statute governing the creation, governance, and dissolution of nonprofit corporations, including charities.

• Also the incorporation and governance statute of Ontario insurance and mining companies.

• Not a regulatory statute; it is an enabling and organizational statute; enforcement of the rights and duties under the Act lies primarily with the corporation, its directors, and its members.

4

Why modernize the Corporations Act?

• It is outdated.

– The statute was enacted in 1907 and was last substantially updated in 1953.

– Many of its provisions are no longer applicable or relevant, while others are obviously missing.

• It is hard to understand. Need to simplify the structure and language of the Act.

• It does not meet the requirements of today’s modern, diverse not-for-profit sector.

5

Public Consultation Process

• Being led by the Ministry of Government & Consumer Services.

• Three consultation papers have been issued

– Paper 1 released May 2007 deals with broad issues including the structure of a reformed act, the incorporation process, definition of a not-for-profit corporation, classification of not-for-profits, and corporate powers and capacities.

– Paper 2 released August 2007 deals with technical issues related to directors and officers.

– Paper 3 released February 2008 focuses primarily on membership and corporate finance issues.

6

Timeline for Drafting New Legislation

• Spring 2008: End of public consultation phase.

• Summer 2008: Consultations with inter-ministry working group and expert panel.

• Fall 2008/Winter 2009: Draft legislation.

• Spring 2009: Introduction of new legislation.

7

Who is Imagine Canada?

• A national charitable organization with offices in Toronto, Ottawa, and Calgary.

• Approximately 1,200 charitable and nonprofit members and over 100 Caring Companies.

• Principal voice for Canada’s charities and nonprofits and socially-minded businesses.

• www.imaginecanada.ca

8

What is the Task Force on NFP Corporation Law Reform?

The Task force was convened by Imagine Canada in November 2007 to address reform initiatives in various jurisdictions across Canada to modernize Not-for-Profit Corporations legislation.

Ian Clark University of Toronto

Clifford Goldfarb Partner, Gardiner Roberts LLP

Jennifer Holmes YMCA Ontario

Colleen Kelly Executive Director, Volunteer Vancouver.

Teri Kirk Vice President, Imagine Canada

Susan Manwaring Miller Thomson LLP

David Stevens Gowlings Law Firm Support for the Task Force’s work in Ontario was provided by the Ontario Trillium Foundation.

9

1. Structure of a New Nonprofit Act

2. Incorporation Process

3. Classification System

4. Definition of a Not-for-Profit Corporation

5. Corporate Powers and Capacities

Response to Consultation Paper 1

10

The Ontario Not-for-Profit Corporations Act (ONCA) should be an organizational statute, consistent with the Ontario Business Corporations Act (OBCA). Its order should be chronological, and its measures should be permissive. It should focus primarily on procedural rather than substantive matters. Its audience should be lay users, serving largely in volunteer roles in nonprofit organizations, with limited access to legal counsel.

The ONCA should be harmonized with the OBCA, except where there is a clear and compelling argument for a distinction.

Structure of a New Nonprofit Act

11

The ONCA should provide for incorporation as of right, as is the approach for business corporations under the OBCA.

Incorporation Process

Classification System

The ONCA should not include a classification system. In the event that the Government chooses to include a classification system in the new Act, organizations should be allowed to self-designate their class, whether “public benefit corporation” or “religious congregation” for example, within any such statutory classification system.

12

The ONCA should preserve the purposes set out in the current Act, without further specificity. Not-for-profit corporations should be permitted to carry out any purpose other than the pursuit of profit for distribution to their members.

The ONCA should include restrictions on distribution. This is one of the defining elements of a not-for-profit corporation. Residual assets must not be distributable to members but, rather, should be distributed to organizations carrying on similar activities to those of the liquidating not-for-profit corporation.

Definition of a Not-for-Profit Corporation

13

The ONCA should incorporate the recommendations of the Ontario Bar Association on the corporate powers and capacities of not-for-profit corporations. Specifically, the new Act should harmonize the liability standards facing directors of not-for-profit corporations with those of OBCA directors, and should eliminate the need for not-for-profit corporations to pass bylaws in order to confer powers on the corporation or its directors.

Corporate Powers and Capacities

14

Consultation Paper 2

1. Board Composition

2. Term of Office

3. Directors’ Meetings

4. Resignation, Removal and Vacancies

5. Officers

6. Directors’ and Officers’ Liability

7. Conflict of Interest

15

Directors’ and Officers’ Liability (1)

Duty of Care and Loyalty: The ONCA should adopt an objective standard for the duty of care and loyalty, consistent with the provisions in the OBCA.

Due Diligence Defence: The ONCA should incorporate a due diligence defence that is consistent with the provisions for directors of business corporations. Further, the ONCA should provide that directors and officers of not-for-profit corporations can plead a good faith reliance defence as part of the diligence defence, as provided for under the OBCA.

16

Directors’ and Officers’ Liability (2)

Indemnification and Insurance: The ONCA should permit not-for-profit corporations to indemnify their officers and directors and purchase directors’ and officers’ liability insurance. The current restrictions in the OCA and in the Charities Accounting Act and related regulations should be repealed.

Limiting Liability of Directors and Officers: The ONCA should exempt directors and officers from personal liability, if they can demonstrate good faith and due diligence. The Task Force prefers the provisions of the Saskatchewan Act, which were added in 2003 and set up a good faith defence.

17

The Government’s Consultation Papersare available at

www.gov.on.ca/mgs/

Responses of Imagine Canada’s Task Force to Consultation Papers 1 and 2

are available at www.imaginecanada.ca

18

Thank you