On October 19, 2021, a new chapter for Ontario’s charities and not-for-profit corporations began when the long-awaited Ontario Not-for-Profit Corporations Act, 2010 (the “ONCA”) came into force.
We discussed the ONCA generally in our previous newsletter. The ONCA now applies to all charities and not-for-profit organizations incorporated as non-share capital corporations under Ontario law and will continue to do so going forward. The ONCA also applies to all non-share capital corporations previously incorporated under Part III of the Corporations Act of Ontario (the “OCA”), which governs corporations without share capital.
There are many differences between the ONCA and OCA; some are more substantial in nature and others are more cosmetic. In this article we highlight three general considerations for ONCA corporations when they update or prepare their by-laws to conform to the ONCA (for simplicity in this article we will refer to these corporations as “non-profit” or “non-profits” for the remainder of the article). These considerations are: transition requirements, mandatory provisions and default and elective provisions.
1. Transition Requirements
New organizations incorporating under the ONCA will automatically be governed by the default by-laws (the “Default By-Laws”) approved by the Ministry of Public and Business Service Delivery[1] if the organization does not enact its own by-laws within 60 days after its date of incorporation. The organization can decide to amend the Default By-Laws or draft its own by-laws at any time. For many organizations, the Default By-Laws might be adequate. For many others, the Default By-Laws might not reflect the organization’s desired governing structure.
Existing organizations have a transition period of three years (expiring on October 18, 2024, or the “Transition Deadline”) to ensure their governing documents comply with the ONCA. If an organization chooses not to update its governing documents, its existing documents will be deemed to be amended to the extent that is needed to conform to the new legislation, being the ONCA.
While it might seem easier to sit back and let the deemed provisions apply, this arrangement will not be ideal for many organizations. Uncertainty regarding governance processes could follow. Board and member decisions that continue to be made in accordance with the old governing documents could be invalidated. If an organization’s current by-laws contain tailored governance choices, those choices might be overridden and ignored if the ONCA automatically applies.
As Ontario non-profits consider preparing or updating their by-laws, they should keep in mind that some provisions under the ONCA are mandatory, some provisions will apply only if the non-profit elects to adopt them, and some provisions will apply as a default.
2. Mandatory Provisions
The ONCA contains new provisions that must apply in all circumstances and cannot be overridden in a corporation’s governing documents. In fact, these provisions will apply regardless of whether or not the by-laws contain them and will override any provisions to the contrary after the Transition Deadline.
For instance, the ONCA contains compulsory enhanced obligations for public benefit corporations. We discussed these obligations in our previous article titled ONCA Fast Facts: Public Benefit Corporations.[2] While a “public benefit corporation” is a new term, the concept and its related rules are substantially similar to those that apply to “soliciting corporations” under the federal Canada Not-for-profit Corporations Act.
Specifically, not more than one-third of the directors of a public benefit corporation can be employees of the corporation or any of its affiliates. The by-laws can restate the required provisions, but that is not mandatory. The rule limiting the number of directors who are also employees of a public benefit corporation will apply regardless.
3. Default and Elective Provisions
Ontario non-profits should also consider updating their by-laws to include the ONCA’s optional provisions. In certain situations, the default provisions will suit an organization just fine; in other situations, the organization might want to take advantage of the options provided in the discretionary provisions.
In some cases, in order to avoid the application of the default rules, the corporation must include provisions in their governing documents expressly overriding them. For example, the ONCA states that, if a quorum is present at the opening of a meeting of the members, the members present may proceed with the business of the meeting, even if a quorum is not present throughout the meeting, unless the by-laws provide otherwise.
In other words, the organization could state in its by-laws that a quorum is required throughout the entire membership meeting; if it does not, the default rule of an opening quorum being sufficient will apply. The wording “unless the by-laws provide otherwise” in the ONCA clearly allows the corporation to override this provision if it wishes.
Other examples of elective provisions involve proxies, members’ meetings and member discipline.
Proxy voting by members is optional (we discussed proxies in our previous article, ONCA Fast Facts: Proxies). Under the ONCA, members can use proxies only if the organization’s articles or by-laws expressly permit them.
Giving notice for an adjourned members’ meeting is also not mandatory, depending on the timing of the meeting. If a meeting of the members is adjourned for less than thirty (30) days, it is not necessary that any person be notified of the meeting that continues the adjourned meeting, other than by announcing the new date at the meeting that is adjourned. If an organization would prefer for its members to receive notice of all adjourned meetings, even those adjourned for less than thirty (30) days, they can specify this in the by-laws.
Organizations also have the power to discipline members if their articles or by-laws provide for this power. However, the ONCA requires that the governing document must set out the circumstances and the manner in which the power may be exercised.
There are many other provisions for by-law drafters to consider, now that the ONCA applies to Ontario non-profits. Boards should review these additional powers, rules, or options. We encourage organizations to review Miller Thomson’s Quick Fact Series on other distinct aspects of the new legislation that they should consider when drafting their by-laws and thinking about their desired governance structure.
Closing remarks
A good set of by-laws should be unambiguous, practical and helpful. However, creating new by-laws or amending existing by-laws to respond to the ONCA can appear technical and daunting at first.
If your organization’s current by-laws do not reflect your current governance practices, or if your articles and by-laws have not been updated for an extended period of time, or if you require expert advice or drafting to take advantage of all that the ONCA has to offer, Miller Thomson’s Social Impact Group would be pleased to assist you in preparing ONCA-compliant by-laws that meet your organization’s governance needs.
[1] Formerly the Ministry of Government and Consumer Services.
[2] The ONCA defines a public benefit corporation, as a charitable corporation, or a non-charitable corporation that receives more than $10,000 or other prescribed amount in a financial year in the form of donations or gifts from persons who are not members, directors, officers or employees of the corporation, or in the form of grants or similar financial assistance from the federal government or a provincial or municipal government or an agency of any such government.
