As of October 17, 2014, existing not-for-profit corporations incorporated under Part II of the Canada Corporations Act (the "Old Act") are required to be continued under the new Canada Not for Profit Corporations Act (the "New Act") or face the possibility of automatic administrative dissolution. For those corporations that are also registered charities, dissolution could mean the revocation of registration as a charity which could result in substantial tax penalties, and thus there are serious implications for the failure to continue under the New Act.
FEATURES OF THE NEW ACT In general, the New Act has been modernized to conform with modern business corporation statutes. The New Act provides a clear set of rules that govern the internal affairs of corporations under its jurisdiction including clear and coherent statements of member rights, rules regarding members and directors meetings, and provides specific rules regarding fundamental changes (amalgamation, continuance, liquidation and dissolution). The New Act also provides a benefit to those individuals who are acting as directors, in that it sets out a due diligence defense for certain liability resulting from director negligence.
There is additional oversight provided for under the New Act including the requirement to submit all bylaws and amendments thereto to Corporations Canada. There are also financial reporting requirements under the New Act. For non-soliciting corporations with annual gross revenues in excess of $1 million or for soliciting corporations with annual gross revenues in excess of $250,000, a full annual audit must be conducted. For those soliciting corporations with revenues between $50,000 and $250,000, an audit is required unless the members resolve that a review engagement is sufficient. For non-soliciting corporations with gross annual revenues under $1 million or for soliciting corporations with revenues under $50,000, and a review engagement is required unless the members resolve that one is not required. These records must be made available to members, directors and officers of the corporation and to Corporations Canada. Soliciting corporations must make their financial records publicly available.
PROCESS OF TRANSITION Corporations incorporated under the Old Act which have not started the continuance process under the New Act should act now to ensure the process is completed before the October 17, 2014 deadline. For those corporations incorporated under the Old Act which are also registered charities, additional steps are required – particularly if the charity is looking to amend its purposes as part of the transition, as pre-approval from Canada Revenue Agency can take upwards of two to three months before the continuance process can be started under the New Act.
Transitioning is a fairly simple process under the New Act, although some time will be needed, as member approval is required. The corporation must replace its letters patent, supplementary letters patent (if any) and bylaws with new charter documents which comply with the New Act. The corporation must submit articles of continuance, forms confirming the initial registered office and first directors of the corporation, and a name search confirmation. Bylaws which are in compliance with the New Act can be submitted either as part of the initial package, or within 12 months of continuance following approval by the members.
Following a successful transition under the New Act, all registered charities (including those who have not amended their purposes and even those who have obtained pre-approval from the Canada Revenue Agency) must submit the certificate of continuance, articles of continuance, various fi ling forms as well as a copy of the current bylaws and statement of purposes to the Canada Revenue Agency.
As we're down to a matter of months before the transition deadline of October 17, 2014, any corporation incorporated under the Old Act should turn their attention to their continuance under the New Act, so as to avoid an involuntary dissolution.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
