Ontario Not-For-Profit Corporation Act, 2010 – An Overview of the Transition

January 2013 | Kate Lazier

Non-share
corporations incorporated under the Corporations Act (Ontario)(“OCA”)
should be preparing for the transition under the new Not-for-Profit
Corporations Act
(Ontario)(“ONCA”). As we have reported previously, the Ontario government has
announced that the ONCA will likely come into force on July 1, 2013. The ONCA
has been passed by the Ontario Legislature but is not yet in force. It will
come into force on the day named by proclamation. Time will tell if the July 1,
2013 date becomes a reality. Before the ONCA comes into force, it is important
that Ontario corporations review their membership structure and decide whether
action is necessary before the in-force date.

On the day that the ONCA comes into force,
the ONCA will immediately apply to corporations without share capital
incorporated by or under a General or Special Act of the Ontario Legislature.
These corporations will not need to take any action to have the ONCA apply to
them. However, Ontario corporations will still need to take action in order to
ensure full compliance with the ONCA. The ONCA is significantly different from
the OCA and, thus, each Ontario non-share corporation will need to
revise its governance documents (i.e. its Letters Patent and By-law) to accord
with the ONCA.

One of the more significant and
potentially challenging aspects of the ONCA is its granting of the
voting rights to members who, under the current regime, would not have the
right to vote on corporate decisions. The ONCA will significantly constrain the
ability of corporations to have non-voting members. Under the ONCA, non-voting
members will have the right to vote on certain fundamental corporate changes.
In some cases, each class or group of members will have a separate class vote,
which means each class will have to pass a change by a 2/3 approval before the
change can occur. This effectively allows a minority of a single class to veto
any action.

Fundamental changes include:

  • amendments to the rights of the class of members;
  • amalgamation with another corporation;
  • continuance of the corporation into another jurisdiction;
  • the sale of substantially all of the corporation’s assets; and
  • a proposal to dissolve, or to liquidate and dissolve, the corporation.

Corporations that do not want their
non-voting members to vote or do not want separate class votes will want to
change their membership structure. Thus, the first step for a corporation under
the OCA is to determine whether it has non-voting members or various classes of
members that should be revised.

While the ONCA is in force on the day that
is named, the Ontario government has stated that corporations have three years
from the date that the ONCA is in force to change their by-laws.   If a corporation does not change its by-laws
within three years the by-law is deemed into compliance with the ONCA.  The view of the Ontario government is that
this provision implies that corporations with multiple membership classes do
not become exposed to the class veto provisions described above until the
earlier of passing a new bylaw or the end of the three year period.  Clearly this was the intent of the drafters
of the ONCA – however, the words used in the ONCA are not clearly consistent
with that statement.  While we think it
likely that a Court would give effect in the circumstances to the drafters’
intent, it is possible that a Court would grant class veto rights during the
three year period.

Corporations that intend to change their
membership structure under the ONCA should consider whether to do so before it
is in force.  For corporations that do
not have these membership issues, the corporation will still need to update its
By-law; however, these corporations are recommended to wait at least until the
government has released regulations for the ONCA before making any changes.
Waiting will allow these corporations to pass a By-law that complies with the
regulations.

Organizations should review their current
Letters Patent and By-Law and determine whether the corporation wants to make
any changes or whether any changes are required to ensure compliance with the
ONCA. Once these changes have been made to the corporation’s governing
documents, the corporation can then proceed to hold the necessary directors’
and members’ meeting to pass these documents. Once the signed documents are
completed, they must be filed with the necessary governmental bodies.

Miller Thomson LLP would be happy to help
clients with these transitions and provide specific advice on transition
issues.

Disclaimer

This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as legal opinion or advice.

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