Focus: Not-for-profit bill seeks to streamline

Ninety years ago, Henry Ford’s Model T was still making inroads, coal was king, and business was a paper-intensive exercise.

So it’s hard to imagine that the current federal legislation governing not-for-profit corporations, and other corporations generally, the Canada Corporations Act, dates back to 1917 and has yet to be amended in light of today’s digital technologies.

Bill C-62 will create a specific Canada Not-for-Profit Corporations Act and move 12 categories of business corporations, created by special acts of Parliament now subject to the Canada Corporations Act, into the Canada Business Corporations Act, in the process repealing the old act.

That is, however, exactly the case, though successive governments have tried and failed to push through changes. The current minority conservative government is the latest to tackle the issue and on June 13 tabled Bill C-62, which would bring a series of long-awaited changes to the process of registering and operating NPOs.

Ontario too is planning similar updates to its regime, but, as William Pashby, partner at Borden Ladner Gervais LLP, notes, there are no guarantees which legislature will be the first to pass legislation.

“I thought the federal government would be first but I was wrong both times,” he chuckles. “Now we have a minority federal government which has tabled a bill and a majority provincial government which is still in the formative stage of the legislation.”

That change is needed is accepted by all parties, he says, noting the current process of simply registering is vaguely defined and encumbered by a series of policy statements which are out of context with the law as written and subject to dispute.

The plan, says his colleague Bonnie Freedman, is to streamline the process, bring some transparency to operations in line with current corporate-governance thinking, and set out clearly what directors’ responsibilities and liabilities are and what members’ rights are.

Currently, she says, the process is cumbersome and lengthy, requiring four to six weeks to complete, compared to a for-profit incorporation, which can be done in a matter of minutes.

“Frankly, because there’s a lack of a complete code you can’t even tell if the bylaws are going to be accepted,” she notes. As a result many lawyers in the sector are uncomfortable when advising clients who want to draft bylaws, because going outside or beyond the “template” of sample bylaws issued by the Ministry of Industry is tantamount to a journey into the unknown.

Even simple additions like recognizing electronic meetings as a legitimate forum aren’t covered by the current act, because of its vintage.
The government too is acutely aware of the burdens the outdated section imposes, noting the new legislation will have the effect of “reducing the paperwork burden for businesses.”

Among the changes will be the repeal of some 4,700 information and administrative requirements for the 161,000 not-for-profit organizations registered in Canada, of which some 19,000 are federally incorporated.

Unlike their for-profit cousins, they have members instead of shareholders and it is the members who appoint the board. Under the new rules, members will also have the right to see the accounts and to vote down any changes to the NPO bylaws at the next annual general meeting.

Professionals who sit as volunteers on boards will also be spared the liability of being held to a higher standard should things go awry as part of clearer rules regarding the roles and responsibilities of directors and officers.

The new act would provide a “due-diligence” defence against potential liabilities.
As such, the government says, in spelling out the standard of care directors must meet, and offering a due diligence defence, it hopes C-62 “will reduce uncertainty for directors regarding their personal liability and should help attract qualified individuals to act as directors of not-for-profit organizations.”

The changes have been a long time coming, says Teri Kirk, executive vice president of Imagine Canada, which promotes interests of charities and non-profits across Canada, but they couldn’t be more welcome.

“Charities and not-for-profits tend to have a low profile when lobbying the federal government on issues like these,” she says. “So there really isn’t a co-ordinated strong voice. So it hasn’t been top of the government agenda.”

She says the industry is pleased that the current government has brought forward a bill to change the CCA, since the last effort, C-21, died when the previous government fell.

Noting that British Columbia and Ontario are both in the process of updating their corporate legislation, she says there’s hope that changes will be made across the country, at both the federal and provincial levels, to make life a little easier for non-profits and charities.

“In the case of the federal government they have taken a very practical approach to the issue and they’ve allowed a generous time for transition and waived the fees,” she says. “I think we’d just like to congratulate them on that.”

C-62 will also confer new roles and powers to the director, as appointed under the act, to issue  certificates of incorporation, amalgamation, or dissolution. The director will also be able to order a corporation to change its name (if it is found to be deceptively misdescriptive), order a court investigation, or dissolve the corporation under some circumstance, powers which were previously by ministerial order only.

Electronic filing will also be permitted and NPOs will be sectioned into two categories: “soliciting” - one that actively raises money from public donations - and “non-soliciting,” that relies on its membership for revenue, as in the case of a trade or professional association.

There are also some sensible provisions, says Freedman, for example, a threshold of income above which NPOs must file an audited statement. It’s a welcome change for those smaller organizations working with budgets of $100,000, since under the current regime they could find themselves paying $10,000 for an audit, a hefty price given their size.

Still, says Pashby, some of those smaller NPOs that don’t have legal advice, or that rely on the volunteer efforts of a member lawyer whose practice may be other than corporate law, may find themselves caught with their pants down if provisions of the current bill before the federal Parliament pass and they fail to comply.

“One of the things we’re trying to do is educate and raise the profile of this,” says Pashby. “Those not familiar with the changes may miss the transition period.”

The bill current allows a three-year transition period for NPOs to adjust their bylaws and practices accordingly and register under the new regime.
Failure to make the transition could result in NPOs being dissolved, warns Pashby.

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