On October 19th 2021, the Not-for-Profit Corporations Act, 2010 (Ontario) (“ONCA” or “Act”) was revamped, introducing several new changes for not-for-profit corporations (“NFPs”) in Ontario. The purpose of the legislation is to effectively modernize the laws for not-for-profit corporations. NFPs would have three-years to make necessary changes to their governing documents (letter of patents and bylaws) to become compliant with the new requirements of the Act. The Act will apply to all pre-existing not-for-profits and all new not-for-profits seeking incorporation under the new Act in Ontario. Given the new legislation, you may be wondering, “What does this mean for NFPs in Ontario?”
Well, we’ve highlighted some of the high-level changes and requirements under the new Act.
Key Changes Under the Act
Articles
Under the new Act, NFPs will now be required to provide articles of incorporation (“Articles”) rather than letters of patent as their incorporating documents. NFPs must ensure that the name and purpose of the corporation are set out explicitly within the Articles. If an NFP has more than one class of membership, this must be stated in the Articles. Additionally, the voting rights of general members and the distribution of property upon dissolution for the corporation must also be set out in the Articles. If an NFP’s incorporating document does not meet the new Act requirements, a corporation may amend its letters patent by filing articles of amendment to bring them into compliance with the ONCA.
New Category of NFPs
The ONCA distinguishes between “public benefit corporation” (“PBC”) and other not-for-profit corporations. Under the new Act, an NFP can be classified as a PBC if it 1) is a “charitable corporation”, meaning it is incorporated to advance education or religion, relieve poverty or other charitable purposes at law; or 2) if the corporation is a non-charitable corporation that receives more than $10,000 in donations or gifts from individuals who are not members, directors, officers, or any other employee in the corporation, or receives grants or similar financial assistance from any level of government or Crown corporation. Under the new Act, corporations classified as a PCB cannot have more than 33% of its directors as employees. Additionally, there are increased obligations related to financial reporting, such as appointing an auditor or individual to review the engagements of the corporation if it has an annual revenue that exceeds $500,000.
By-Laws
NFPs are encouraged to review their by-laws to ensure it is in compliance with the ONCA. Under the new Act, if the Articles of an NFP set out two or more classes of members, then the bylaws need to specify the conditions of membership for each class of member of the corporation. The bylaws should detail how members could join, transfer or withdraw from each class of membership. The bylaws should also provide other means of voting such as by mail, telephone or electronic methods.
The Government of Ontario provides a Standard Organizational By-laws on their website. The Standard Organizational By-laws applies automatically to an Ontario not-for-profit corporation that does not pass an organizational by-law within 60 days after its incorporation.
Directors Duties
The ONCA allows for the Articles to establish a fixed, minimum or maximum number of directors. Directors are subject to a 4-year maximum term. Although, there is no limit on the number of times a director can be re-elected. Directors have a statutory duty of care under the ONCA as well as access to a due diligence and good faith reliance defence. Additionally, the new Act introduces specific disclosure requirements to report conflicts of interest, which apply both to directors and officers. The ONCA also gives directors the power to borrow money without member authorization. However, if an NFP wants to limit this borrowing power, it should be set out in the Articles or bylaws.
Key Takeaway
Not-for-profit corporations, together with appropriate advisors, should review their incorporating documents and structure to determine whether amendments are necessary to ensure it is in compliant with the new Act. NFPs have until October 18th 2024 to make amendments and file their governing documents with the Ontario government. Failure to bring their governing documents into conformity with the ONCA before October 18th, 2024 will result in provisions being “deemed amended to the extent necessary” to conform with the ONCA (with limited exceptions).
For more information, please contact Marrie Shirzada at shirzada@gsnh.com. We acknowledge the contribution of our summer law student Amanda Morana.
These comments are of a general nature and not intended to provide legal advice as individual situations will differ and should be discussed with a lawyer.
