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Charities and non-profit corporations that are federally incorporated should prepare for the changes to their governing legislation, which is expected to come into force in the Spring of 2011. The Canada Not-For-Profit Corporations Act (the “CNCA”) received Royal Assent on June 23, 2009 and will be effective on a day to be named. Industry Canada has indicated that the day will be named in the Spring of 2011.
The CNCA will replace the Canada Corporations Act (CCA). Once the CNCA is in force, all corporations incorporated under the CCA will have three years from that date to continue the corporation under the CNCA (i.e., until the Spring of 2014). If a corporation does not continue under the CNCA within the three year period, it can be dissolved.
Parts of the CNCA also apply to federal corporations established by Special Act. We will provide further information on this topic in an upcoming newsletter.
The differences in the CNCA compared to the previous legislation will require each corporation to amend its governing documents to bring itself into compliance with the CNCA when continuing under the CNCA. Highlights of some of the differences in the CNCA are summarized below.
Incorporation as of Right
Under the CNCA, corporations can incorporate as of right. This should cut down the time to incorporate, as the application to incorporate need not be reviewed by Industry Canada.
Ultra Vires Discarded
Under the CCA, corporations were limited to carrying out activities in furtherance of the objects listed in the corporation’s Letters Patent. Under the CNCA each corporation will have the powers of a natural person. Thus, a corporation’s activities will no longer be limited unless the corporation’s articles specifically restrict the corporation.
In order to continue to qualify as a registered charity, a charitable corporation will need to add restrictions to its objects to ensure that its objects remain exclusively charitable.
Under the CNCA, a corporation will be a « soliciting corporation » for a 3 year period if it receives more than $10,000 in a financial year from a government, another soliciting corporation or person (other than the corporation’s members, directors, officers, employees or persons related to such persons).
Soliciting corporations must have at least 3 directors, are subject to stricter audit requirements, must file financial statements with the government, and on wind-up must distribute assets to a qualified donee.
New Requirements for Articles Versus By-laws
The CNCA requires that membership classes and voting rights be outlined in the Articles of Incorporation. The Articles of Incorporation are the equivalent to the Letters Patent under the CCA. This change will mean that the information regarding membership will be publicly available and cannot be changed without filing Articles of Amendment with the government.
Voting Rights for Non-voting Member Rights
As discussed more fully in our January 2010 newsletter, non-voting members in certain circumstances will get voting rights. A corporation that wants to avoid this result should amend its by-law as soon as possible before the CNCA is in force.
Directors’ Fiduciary Duties
The CNCA introduces an objective standard of care for directors. Directors must fulfill their duties to the level of care of a reasonably prudent person in similar circumstances. This is the same standard of care as included in many corporate statutes across Canada. The CNCA allows directors to avoid liability through due diligence in carrying out their duties.
While the CNCA introduces an objective standard of care, directors of charities are still considered “trustees” at common law and may be held to a higher standard of care.
No Ex officio Directors
The CNCA provides that the majority of directors must be elected by members and up to 1/3 of the directors can appointed by the other directors. This means that the CNCA does not allow for directors to become directors by virtue of their position in another organization. Such directors are called ex officio directors.
A corporation with ex officio directors will need to amend its governance structure under the CNCA.
New Audit Requirements and Thresholds
Soliciting corporations with gross annual revenues above $250,000 must have an audit. The members of a soliciting corporation that has revenues between $250,000 and $50,000 can elect to have a review engagement in lieu of an audit. The member of a soliciting corporation that has revenues under $50,000 can elect not to have an audit or review engagement.
The lawyers in Miller Thomson LLPs Charity and Not-For-Profit Group can assist federal corporations to continue under the CNCA.