Bill 65, the Ontario Not-for-Profit Corporations Act, 2010 (“ONCA”), is an Act to revise the law in respect of not-for-profit corporations. It is a government Bill. It was given First Reading on May 12, 2010 and Second Reading on June 2, 2010. We do not know when the Bill will be given Third Reading and Royal Assent. ONCA is a stand-alone statute. The ONCA replaces Ontario’s current Corporations Act which now regulates not-for-profit corporations in Ontario. The ONCA will bring Ontario not-for-profit laws into conformity with other comparable statutes across Canada. The intention is to give not-for-profit corporations “a modern legal framework to enhance governance and accountability… to give more rights to members and better protect directors and officers from personal liability” (Extract, Ministry of Consumer Services Press Release May 12, 2010).
INITIAL COMMENTSThe ONCA contemplates a transitional period to give not-for-profit (non-share capital) corporations three years to amend their Letters Patent or other constating documents to bring them into conformity with the new Act. This means that you will have plenty of time to do all things necessary to ensure that you are in compliance with the Act.Provisions of the Act relating to director liability and standard of care are likely to be of great interest to your Board of Directors (see pages 2 – 3 of this letter and Part IV of the ONCA).Here is a brief overview of the Bill. (We caution that a definitive opinion will be required once the Bill becomes law.)We attach the Explanatory Note which accompanied the Bill together with the Bill Index. The Explanatory Note and Index are a useful guide and overview. HIGHLIGHTSPart I – Administration The ONCA provides for the appointment of a director to administer the Act.Part II – Incorporation Not-for-profit corporations are entitled to be incorporated “as of right” upon the submission of Articles of Incorporation. (This is a change as in the past, incorporation was subject to the discretion of the Ontario Minister of Government Services. In practical terms, there is no change as the Minister of Government Services customarily granted applications.) A not-for-profit corporation can have a commercial purpose provided the commercial purpose is to advance or support not-for-profit purposes.Part III – Capacity and PowersNot-for-profit corporations are given the capacities, rights, powers and privileges of a natural person.Part IV – Directors & OfficersThis part sets out qualifications, election, appointment, resignation and removal of directors and officers and powers, duties and liabilities. A corporation must have a least three directors. Directors must not hold office for a term of longer than three years, but there is no limit in the number of terms a director may serve.Directors may pass a resolution without the holding of a meeting if the resolution is signed by all the directors.Conflict of interest disclosure rules are carried over from the Business Corporations Act to apply to directors and officers of not-for-profit corporations.Extract from Bill 54 – Explanatory Note:“This part also set out directors’ liabilities and standard of care. The standard of care is to act honestly and in good faith with a view to the best interests of the corporation and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Directors are given a reasonable diligence defence, including reliance on officers and employees of the corporation and on professional advice. Directors and officers are entitled to indemnification from the corporation so long as they act honestly, in good faith and with a view to the best interests of the corporation and believe reasonably that their conduct was lawful.”At least two-thirds of the directors must be members of the corporation whether or not the by-laws stipulate otherwise. This is a change from the current law which requires all directors to be members.The ONCA also requires that no more than one-third of the directors of a “public benefit corporation” may be officers or employees of the corporation. A “public benefit corporation” means a charitable corporation or a non-charitable corporation that receives more than $10,000 in a fiscal year in the form of (1) donations or gifts from persons who are not members, directors, officers or employees; or, (2) in the form of grants of similar financial institutions from the federal government or a provincial or municipal government or an agency of such government.Part V – Members Members’ meetings, members’ rights to receive notice of meetings and to vote and the power of a corporation to discipline or terminate a member are set out.If the corporation proposes to discipline a member or terminate a membership, the member is entitled to 15 days’ notice, reasons for the proposed action and the right to be heard.Part VI – Proxy HoldersThe rights of proxy holders are set out.Part VII – Auditors The appointment, removal, qualifications, duties and rights of auditors is set out. Where revenues are less than a specified amount, a corporation may dispense with an auditor.Part VIII – Financial DisclosureDirectors of a corporation are required to approve annual financial statements and present financial statements and an auditor’s report.Part IX – Corporate FinanceA corporation’s financial powers, including the power to borrow money, issue debt obligations, give guarantees and create security interests are set out.Part X – Records Record-keeping requirements are set out.Part XI – Fundamental ChangeA corporation may make changes by amendment, amalgamation, continuance, extraordinary sale, lease, exchange or reorganization.Part XII – Liquidation and DissolutionComprehensive rules governing winding-up and dissolution based on the Business Corporations Act are set out.Part XIII – InvestigationThe Superior Court of Justice may order the investigation if allegations of misconduct are brought by a member or creditor of the corporation. A Court may appoint an inspector to conduct an investigation.Part XIV – Remedies, Offences, Penalties A current or former member of a corporation, an officer or a director may apply to a court to bring a derivative action where the directors have failed to prosecute or defend an action on the corporation’s behalf. The remedies available to members are based closely on theBusiness Corporations Act.There are offence provisions including that any contravention of the Act or Regulations or making a false report is an offence punishable by fines. Due diligence is a defence.Part XV – Transitional The ONCA contemplates a transitional provision which will give non-share capital corporations three years to amend their Letters Patent or other constating documents to bring them into conformity with the new legislation.NEXT STEPSWe will be monitoring the progress of Bill 65 for a number of our Ontario not-for-profit corporation clients. We will continue to advise you as the Bill progresses. Once the Bill is given Royal Assent and comes into force, we will advise you on any changes which might be required for your Letters Patent, By-laws or procedures.