In 1971, the British blues rock group Ten Years After released their only hit single: “I’d Love to Change the World,” in which they sang “I’d Love to Change the World / but I don’t know what to do / so I leave it up to you.” Were they presciently anticipating the Ontario government’s approach to the Ontario Not-for-Profit Corporations Act (the ONCA), which has now languished in the legislative ether for a decade without coming into force? Did the band choose its name just to give us inspiration for writing this article? Well, no. That would be silly, but this article is all about dusting off and re-examining old things, so why not start it with some 50-year-old music trivia.
While the Ontario government announced it was extending the launch date of the ONCA until early 2020, a recent motion has since re-extended the ONCA until December of 2021 . This motion serves as a mere housekeeping measure to save the ONCA from expiration, for legislation that does not come into force within 10 years is automatically cancelled. Delays have become an unfortunately common feature in a long and silent history for the ONCA, with today marking the 10th anniversary of the Bill’s passing, though it still has not come into force. In commemoration of this anniversary, we thought it prudent to offer a refresher on the reasons the ONCA was created, what has happened to it over the past 10 years, and what you need to know moving forward.
Why was the ONCA created?
On May 12, 2010, Parliament introduced Bill 65, An Act to revise the law in respect of not-for-profit corporations to provide Ontario’s then 46,000 not-for-profit corporations with a “modern legal framework to enhance corporate governance and accountability, simplify the incorporation process, give more rights to members, and better protect directors and officers from personal liability” . Prior to that, not-for-profit organizations that wanted to incorporate under Ontario law would typically do so under the Corporations Act (Ontario), an older, catch-all statute that covered various corporations that didn’t necessarily have the standard corporate structures, including mining companies and insurance companies. The idea was to give not-for-profits a standalone act that would be responsive to their needs. The following explores some of these key features of the proposed legislation.
Enhanced corporate governance and accountability
The ONCA would harmonize treatment of not-for-profit corporations in Ontario with other Canadian jurisdictions by establishing a modern regulatory regime for all corporations under the Act. This regulatory regime includes provisions to organize record keeping and facilitate good governance, while increasing efficiencies in accounting and decision making abilities.
Under the ONCA, a statutory duty of care would apply to directors and officers rather than just a common law one, requiring them to act honestly and in good faith with a view to the best interests of the corporation, and to exercise reasonable care diligence and skill. The ONCA also enables some not-for-profits to conduct a simplified accounting process through “review engagement”, which is less onerous, and accordingly, less expensive, than a traditional audit . The ability to use a review engagement instead of an audit would depend on an organization’s annual revenue and whether the organization is a public benefit corporation .
A simpler incorporation process
The ONCA replaces the antiquated letters patent system, where incorporation is subject to the discretion of the minister, with a system of incorporation “as of right” . Accordingly, incorporation under the ONCA would only take a matter of days, instead of the traditional 6-8 week incorporation process for non-share corporations. Under the new regime, all incorporation applications are submitted directly to Service Ontario. It would also permit electronic filings, rather than paper filings.
More rights for members
The ONCA is designed improve the rights of members of not-for-profit corporations by establishing greater transparency. Members would be entitled to receive financial statements at least 21 days in advance of an annual meeting . Members would also have the ability to apply to the court for a compliance order to force directors and officers to comply with the ONCA, articles, and by-laws of the corporation through standard corporate law mechanisms like derivative actions and a limited version of the oppression remedy through an investigation mechanism. This would be complimented by newfound dissent and appraisal rights that allow members to object to a limited number of significant changes in the corporation, and claim the fair value of their membership interest if certain requirements are met . Moreover, the ONCA would make it mandatory for not-for-profit corporations to make proxies available to members for voting .
Increased Director and Officer protection
The ONCA would establish a due diligence and good faith defense for directors, in addition to the objective standard of care provided under modern corporate statutes . A director will not be legally liable in circumstances where they acted with the care, diligence, and skill that a reasonably careful person would have exercised in similar circumstances.
So, what has happened to the ONCA in the last 10 years?
Not much. If, however, you were looking for more detail in answer to that question, there have been three amendments to the ONCA since its passing in 2010. Let’s look at each of them.
The 2015 amendments
The 2015 amendments to the ONCA were established through the passing of the Forfeited Corporate Property Act, 2015 (the FCPA). The FCPA addresses what happens to property that is not distributed by an Ontario corporation prior to its dissolution. It amends the OBCA, the OCA, and the ONCA.
The FCPA amends the ONCA so that not-for-profit corporations must keep a register of ownership interests in land in Ontario. This is an important amendment for dealing with circumstances of dissolution; namely, circumstances in which a not-for-profit corporation dissolves without taking steps to deal with their assets and liabilities.
New record keeping requirements make for a more organized accounting practice, which makes for a more efficient dissolution and disposition of property process .
The 2016 amendments
In 2016, the only amendments to the ONCA were designed to clarify language differences between the French and English versions of the Act. The French version was updated to substitute the definitions of “associate” and “related person” with the words “family member”.
The 2017 amendments
The 2017 amendments to the ONCA result from the passing of the Cutting Unnecessary Red Tape Act, 2017, which changes the Ontario Corporations Act, the Charities Accounting Act, and the proposed ONCA . The amendment was designed to modernize Ontario’s corporate and commercial laws, and enable full online delivery and access for companies and business services .
As a result of this amendment, notices and members meetings can be delivered and facilitated electronically. This was designed to make it easier for not-for-profits to call meetings and participate in corporate governance. Corporations that want to prevent electronic notice and meetings need to amend the corporation’s by-laws to prohibit them.
The 2017 amendment also grants not-for-profit corporations the rights, powers, and privileges of a natural person. This means the corporation will no longer need letters patent or by-laws to give it powers. However, restrictions may still be imposed on the corporation through its governing documents.
The amendment also brought key changes to the role and governance of directors of not-for-profits. As mentioned above, the ONCA established a newfound objective standard of care for directors; a standard directors may rely on in their defense, and a standard members may use in an attempt to remove a director from their position. Under the 2017 amendments, such a removal process is easier to conduct as the default provision of the ONCA only require a majority of members to vote to remove a director (unless the by-laws dictate otherwise). This amendment also demonstrates that a person is capable of being a director of a not-for-profit corporation without being a member of that corporation (if permitted in the by-laws). This newfound non-member directorship capability has important structural implications for not-for-profits. It is now possible to have a not-for-profit corporation with only one member. This amendment also opens the doors for not-for-profits to avoid having two classes of voting and non-voting members.
The housekeeping motion – Continuing the ONCA until December, 2021
On September 17, 2020, the Government of Ontario introduced motion #89 into the legislature to save the ONCA from cancellation. Legislation is automatically cancelled if it does not come into effect within 10 years. Considering the ONCA was passed in October of 2010, this motion was a necessary housekeeping measure to continue this valuable legislation, while intentionally excluding two new voting provisions that provide for a separate class of voting and voting rights for non-voting members in certain circumstances. According to the Ontario Nonprofit Network, the nonprofit sector has been advocating to remove these two provisions from ONCA for a long time . The removal of these provisions means non-voting members will not have a vote, and different classes of members will not have veto powers over key decisions.
Where do we go from here?
Once the ONCA comes into force, not-for-profit corporations will have three years to review and amend their documents to conform to the new Act.
This review process should consist of five primary steps :
- Review of letters patent;
- Review of by-laws;
- Review director and officer provisions;
- Review member provisions; and
- Review borrowing powers.
Step 1: Review of letters patent
Not-for-profit corporations should ensure that what their letters patent set out reflects the real activities of the corporation, including the activities they plan to pursue in the future. This is necessary to ensure compliance with the ONCA, its regulations, and other laws and court decisions. If the not-for-profit is considering becoming a registered charity, this is a good time to examine if the letters patent match with Canada Revenue Agency expectations for acceptable charitable purposes.
Step 2: Review of by-laws
Once the ONCA is in effect, it will function, in some ways, as the default organizational by-law for not-for-profit corporations. Accordingly, it will automatically apply to a new corporation incorporated under the ONCA, so long as the new corporation has not passed their own by-laws altering certain default provisions. Most drafted by-laws spell out organizational responsibilities in greater detail, but care should be taken to identify where deviation from the corporate statute could occur and whether such a deviation is appropriate.
Step 3: Review director and officer provisions
Those currently operating a not-for-profit, or seeking to incorporate one, should consider setting provisions to govern the structure of the corporation and the relationship between directors, officers, and members. This includes a determination of whether default provisions should be changed (i.e., director terms, indemnification, conflict of interest), and/or whether structural changes are necessary; specifically, whether directors must be members of the corporation, and what officer positions are best suited for your governance structure. This may also be a good time to examine the familiarity that a not-for-profit’s directors and officers have with their duties and responsibilities.
Step 4: Review member provisions
Classes of members must be set out in the articles. If your not-for-profit’s by-laws currently provide for more than one class, these provisions should be transferred to the articles by amendment. It may also be worthwhile to consider whether membership qualifications should be changed, and if the new rights granted to members under the ONCA justify amended voting, meeting, notice, and/or disciplinary provisions. Currently, many organizations provide memberships to any person that shows an active interest. The changes that the ONCA will bring about make membership maintenance and admission criteria a lot more important than they were under the OCA, though the recent housekeeping motion has addressed some of these concerns.
Step 5: Review borrowing powers
Not-for-profit corporations should consider whether they are comfortable with their directors having the power to borrow money without member authorization. Such a borrowing power is granted under the ONCA unless the articles or by-laws provide otherwise. This new default provision will likely be welcome to most not-for-profits, but it should not be ignored.
The Ontario government explains that delays in the ONCA’s coming into force result from delays in upgrading the technological platforms the government will be using to support new changes and electronic delivery. In the meantime, many of the organizations that began preparations for the ONCA thinking it would follow the same timeline as the Canada Not-for-Profit Corporations Act have now waited in a form of limbo for 10 years. Plans that may have been put in place a decade ago may, due to organizational departure or merely the passage of time, now have inconsistencies or pieces missing. If your not-for-profit is in this position, or if it doesn’t have a transition plan in place, Dentons can help review your existing plan, fill gaps, or even create a custom one from scratch. It’s difficult to call anything associated with the ONCA urgent at this point, but it is important.
For more information, please contact Matthew Literovich of Dentons’ Corporate group.
- Ontario Nonprofit Network, “ONCA Update” (September 24, 2020) online↩
- Ministry of Consumer Services, Ontario's Proposed Not-For-Profit Corporations Act (October 19, 2010) online)↩
- Blumberg, “Ontario Not-for-profit Corporations Act Suitcase” (2013) online at 2.↩
- Ibid. While an audit is meant to give some assurance that the financial statements are free of material misstatements, a review engagement is only meant to ascertain whether or not the financial statements are believable or plausible↩
- Carter and Robertson, “Introduction of Bill 65, the Ontario Not-for-profit Corporations Act” (2010) online [Introduction of Bill 65]↩
- Section 84↩
- Section 191↩
- Section 187↩
- Section 67↩
- Introduction of Bill 65, supra note 4.↩
- Sections amended include:
s. 92 – record keeping;
s. 167-173 – dissolution & disposition of property;
s. 208 - transition ↩
- Sections amended include:
s. 4.1, 5, 6;
s. 106, 107, 115;
s. 168, 169;
s. 200, 204, 206, 207, 208, 210. ↩
- Ontario’s Regulation Registry, “Proposed Cutting Unnecessary Red Tape Act, 2017”
- Ontario Nonprofit Network, “ONCA Update” (September 24, 2020) online↩
- Not-for-Profit Corporations Act –Transition Considerations