The Canada Not-for-profit Corporations Act (the “NFP Act”) came into force on October 17, 2011. The NFP Act replaces Part II of the Canada Corporations Act (the “CCA”), which has remained substantially the same since 1917, as the governing legislation for federal corporations without share capital, or not-for-profit corporations. The NFP Act applies to bodies corporate without share capital and those incorporated by a special Act of Parliament. The NFP Act provides a modern corporate governance regime for federal not-for-profit corporations by making such regime similar to the corporate governance regime for federal for-profit corporations. Now in force, all federal not-for-profit corporations will incorporate under the NFP Act, and all existing not-for-profit corporations will have three years to transition to the new legislation or risk being dissolved.
This article provides an overview of some of the key features of the NFP Act and how existing federal not-for-profit corporations can transition to this new act.
Key Features of the NFP Act
Incorporation, Articles and By-laws
Under the NFP Act applications for letters patent with accompanying by-laws are no longer submitted for review and approval by Industry Canada. Instead, corporations can incorporate as of right, upon submission of signed articles of incorporation in the approved form, along with certain other required information.
The content of the by-laws is also greatly reduced as any requirement under the NFP Act to set out a provision in the by-laws is satisfied by setting out such provision in the articles of incorporation. The NFP Act itself also sets out more rules for, and the powers of not-for-profit corporations generally with the result that such provisions no longer need to be included in the by-laws.
Powers of a Natural Person
All not-for-profit corporations under the NFP Act have the capacity, rights, powers and privileges of a natural person, subject to any restrictions in the NFP Act, the articles or the by-laws of the corporation. By-laws therefore, are no longer needed to confer specific powers on a corporation or its directors.
Directors and Officers
Like the regime for directors and officers of for-profit-corporations, the NFP Act sets out an objective standard of care for directors and officers of not-for-profit corporations requiring that they act honestly and in good faith with a view to the best interests of the corporation, and exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances. The NFP Act also outlines more specific duties and responsibilities for directors and provides them with a due diligence defence against potential liabilities.
The NFP Act sets out more default rules for not-for-profit corporations than previously provided in the CCA. Many of these rules can be opted out of or modified by the articles or bylaws but are there as a base. Overall, members are provided enhanced rights under the new legislation, including the right to submit notice of any matter, subject to some exceptions, the member proposes to raise at an annual meeting, the right to discuss at an annual general meeting any matter with respect to which the member is entitled to submit a proposal, the right to propose to make, amend or repeal a by-law, enhanced rights with respect to access to information, and the right to enter into a unanimous members agreement.
Reporting and Annual Obligations
Not-for-profit corporations under the NFP Act continue to have ongoing reporting and annual obligations. Corporations are required to hold annual meetings, file annual reports, and report any changes to the corporation’s directors, articles, by-laws and registered office address.
Soliciting and Non-Soliciting Corporations
Under the NFP Act a Soliciting Corporation is a non-for-profit corporation that receives funding through public donations or government grants in excess of $10,000 in a single financial year. Soliciting Corporations face different requirements than non-soliciting corporations in some instances. Such unique requirements include having a minimum of three directors, two of whom are not officers or employees of the corporation, the prohibition against the use of a unanimous members agreement, the requirement to send financial statements and public accountant reports, if any, to Industry Canada, and the requirement that upon dissolution any remaining assets must be distributed to a qualified donee as defined in the Income Tax Act.
The NFP Act, unlike the CCA, provides for electronic documents and allows for meetings to be held, participated in, and voted on electronically.
Transitioning to the NFP Act
In order to transition an existing not-for-profit corporation to the NFP Act to avoid dissolution there are five basic steps.
- Review the Corporation’s Current Letters Patent and By-laws
As previously stated many details that are currently contained in Letters Patent and by-laws are provided for in the NFP Act and will therefore no longer be required. As a first step you will want to review how your corporation is set-up to determine which provisions are and which are no longer necessary.
- Create Articles of Continuance
Letters Patent are replaced by a Certificate of Continuance and attached articles in the form provided for by Industry Canada. Basic information with respect to the corporations structure will be required, including any restrictions on the corporations activities, or any other provision the corporation would like to include in its articles. The corporation may also change its name as part of the continuance.
If a corporation is also a registered charity, the draft articles should be pre-approved by the Canada Revenue Agency, prior to filing them with Industry Canada under step 5 below. Such approval can take between six and eight months.
- Revise the By-laws
Again, certain provisions will no longer be required in a corporation’s by-laws or may be included in the articles in satisfaction of the requirement to include them in the by-laws. At this point, the corporation needs to revise its by-laws to include those mandatory provisions not already included in the articles and may opt-out of, or modify certain default provisions contained in the NFP Act.
- Obtain Member Approval
Once the articles and by-laws are drafted and revised, a members meeting will need to be called in accordance with the existing rules to obtain approval by at least two-thirds of the members of the corporation.
- File with Industry Canada
Once approved, the articles must be filed with Industry Canada, along with other forms for the registered office address and the first board of directors. The by-laws do not need to be filed to obtain a Certificate of Continuance but must be filed within 12 months of member approval.
The NFP Act provides existing not-for-profit corporations an opportunity to review and restructure their organization to better suit their needs and utilize a more modern governance regime, and potential new not-for-profit corporations can now incorporate without the burden of antiquated legislation.
As the NFP Act came into force on October 17, 2011, all existing not-for-profit corporations now have three years from that date in which to complete their transition to the new act.
If you are an existing not-for-profit corporation that needs to transition to the NFP Act or are planning to incorporate a not-for-profit corporation under the NFP Act, please call us to further discuss the requirements for transitioning and the NFP Act generally.