The Ontario Government has now completed its rewrite of the Corporations Act (Ontario) (the “Old Act”) and introduced a Bill titled the Not-for-Profit Corporations Act, 2010 (the “New Act”) that is intended to govern non-share capital corporations that were originally governed by the Old Act.
The legislation amends the Old Act by confirming it will continue to apply to insurance corporations and for five years to corporations with objects of a social nature. Corporations other than insurance corporations established under the Old Act are given five years to continue under the New Act, the Co-operative Corporations Act (Ontario) or the Business Corporations Act (Ontario).
The Act as tabled is a positive step forward for the non-share capital corporation world in Ontario in that it updates the law governing such entities. For those who have been working with officials at the Ministry, the eagerly anticipated draft legislation, on first review, is somewhat disappointing particularly given there are aspects of the New Act which are strikingly similar to the new Canada Not-for-Profit Corporations Act (the “Federal Act”).
Bill 65 received second reading on May 17, 2010 and it is this author’s understanding that the Bill will be referred to a Standing Committee for review sometime in the summer. It is expected that the sector and organizations such as the Ontario Bar Association will have an opportunity to consult with Ministry officials between now and then with a view to recommending and reaching agreement on possible amendments.
A detailed review of the draft legislation will be provided over the coming months in this newsletter. At this point in time, it is fair to say that some of the concerns that we raised regarding the Federal Act apply equally here. The draft Bill incorporates a concept similar to that of a soliciting corporation under the Federal Act and similarly provides non-voting members with rights to vote in certain circumstances. We have routinely questioned this latter right because it is our view that a membership interest in a non-share capital corporation generally cannot be analogized to the interests of the shareholder in a for-profit entity. A shareholder clearly has an economic interest that is intended to be protected by the legislation. Other than in the circumstances of some private clubs, a member generally has no equity interest in the operation, but rather are members because of their support for the public purpose and activities of the entity. It remains our view that the public benefit purpose should be the primary driver of decisions in public benefit organizations and that the membership, particularly the non-voting membership, should not be able to thwart the efforts of those in a fiduciary position and legally responsible to operate the entities.
We are also concerned to see a definition of “charitable corporation” which does not on first blush clearly adopt the common law definition of charity. These areas will be of great concern to those charities established under the Old Act which are required to continue under the New Act. That said, further analysis needs to be done and discussions had before the Act is finalized. We congratulate the Government for having tabled Bill 65 which will update the current archaic legislation.
For existing non-share capital corporations incorporated in Ontario, once the Act is enacted there will be a time period of five years during which your organization will have the opportunity to continue under the New Act. Further details of how to do so will be published in this newsletter as they become clear. Further, Miller Thomson’s Charities and Not-for-Profit law group will continue to provide updates as Bill 65 moves forward. We look forward to assisting readers in working with the New Act as soon as the Act is in force.