Banka: Transitioning not-for-profits under new federal laws
Corporations Canada has updated the Not-For-Profit Act.
This act applies for a not-for-profit corporation that has been federally incorporated so that it can do business internationally and across Canada.
The act has been modernized and now provides items such as a clear set of rules that govern the internal affairs of federal not-for-profit corporations, less red tape and simplified processes, more flexibility to make fundamental changes such as amalgamations that weren’t allowed under the old act and a more objective standard for directors to carry out their duties and responsibilities that will reassure individuals who decide to be on the board of directors.
The new act does not automatically apply to the existing corporation. Any not-for-profit incorporated under the old act needs to transition to the new act by October 17, 2014.
The transition process will require looking at and amending your articles of incorporation and your bylaws and any letters patent to comply with the new legislation.
Once everything has been updated, it needs to be submitted along with an application for continuance in order to operate as a federal corporation. There may be additional requirements if the corporation is also a registered charity.
Any corporation that doesn’t make the transition by the deadline will be deemed to be inactive and will be dissolved.
If there are any liabilities at the time of dissolution, they could become the liabilities of the directors.
There will be a period of months whereby the government will attempt to contact any non-transitioned corporation before processing the dissolution.
Please note that if the corporation was also a registered charity and they missed the deadline, they will be required to reapply for registered charity status once their not-for-profit corporation is re-instated.
The reason for a Certificate of Continuance is because the corporation is already incorporated under the act, it cannot incorporate again but it can ‘continue’ into the new act. Since the act has changed, the articles of incorporation need to be changed and become the articles of continuance. The articles of continuance become essentially the constitution of the corporation.
Under the old act, the not-for-profit corporation was required to include a lot of detail in their bylaws such as procedures for members meetings, the manner of electing or appointing directors, procedures of directors’ meeting and the procedures for making, amending or repealing bylaws.
The new act now contains many of these rules and classifies them as ‘default’ rules some of which can be amended by a corporation’s articles and bylaws and some which can’t.
When changing your articles and bylaws it is important that any change still continues to comply with the spirit of the act and that none contravene it.
Your new articles and bylaws must be consistent with the act.
The Corporations Canada has more information on the transition process and also has a fillable Form 4031 – Articles of Continuance with some detailed instructions.
If you have determined that your articles are too archaic, you can use the model articles and amend them for your purpose as long as the changes are consistent with the act.
There are also model bylaws available as well as a bylaw builder.
There are only two mandatory bylaw provisions that are required under the new act. Your bylaws need to address the conditions required for membership and who is entitled to vote at meetings.
Some other bylaws that you might want to consider are those dealing with the discipline of members, dispute resolution, transferability of membership, absentee voting and consensus decision making.
The mandatory bylaws must be approved by a special resolution of members.
Other rules that require a special resolution are those rules regarding the transferability of membership and absentee voting.
All the other bylaws can be approved by a simple majority vote.
The articles of continuance must also be approved by a special resolution of members.
The articles of continuance must be filed with the application for continuance, but the bylaws can be filed anytime within 12 months of approval.
Incorporation of not-for-profit entities in British Columbia is governed by the Society’s Act.
Currently the B.C. government is undertaking a review of this act with a view of bringing it up to date with the Canadian Corporations Not-For-Profit Act.
Some changes that are being considered for the B.C. act are changes to the approval of special resolutions that currently require 75 per cent of the member vote down to 66 per cent, removing the limitation on non-voting members, voting flexibility to be able to allocate more votes to larger contributing members, stating basic minimum requirements for being a director or an officer.