The Canada Not-for-profit Corporations Act (the Act), which will replace Part II of the Canada Corporations Act (the CCA), is currently expected to be proclaimed into force late this year. The Act will reform and modernize federal not for-profit corporate law, and corporations currently governed by Part II of the CCA will be required to comply with the Act within three years of its coming into force.
This is one in a series of bulletins examining and explaining different provisions of the Act. Three previous bulletins have addressed the transition steps under the Act and innovations in the area of members' rights. This bulletin will review important distinctions made in the Act between soliciting and non-soliciting corporations.
Under the Act, the designation of "soliciting corporation" will apply to corporations that receive public money in sums above a certain threshold, and soliciting corporations will be subject to more stringent requirements in some areas, as compared with non-soliciting corporations.
Designating soliciting corporations
Subsection 2(5.1) of the Act, read together with section 16 of the current draft regulations made thereunder, provides that a corporation is designated as a soliciting corporation for approximately three years if it receives more than $10,000 in income, including property, from any of three specified sources during a single financial year.
The three specified sources of income are set out at subsection 2(5.1) of the Act and can be summarized as follows:
- income requested and received from members of the public;
- income in the form of grants received from government or a government agency; and
- income received from a soliciting corporation.
This means that if, in any financial year, a corporation receives over $10,000 from any of the three sources listed above, it will then be designated as a soliciting corporation. This designation will be in effect from the date of the corporation's first annual members' meeting following the end of the applicable financial year and will end on the date of the corporation's third annual members' meeting following that initial annual members' meeting.
It follows that some corporations may constantly be designated as soliciting, and some may only be sporadically designated as such, depending on their funding patterns.
Application to be deemed non-soliciting
On application by a corporation that would otherwise be designated as soliciting, the Director (as appointed under the Act) may, under subsection 2(6) of the Act, determine that the corporation is to be considered non-soliciting. The Director may make such a determination if satisfied that no prejudice to the public interest would result.
Special rules applicable to soliciting corporations
Although unanimous members' agreements (UMAs) will become available under the Act (s.170(1)), soliciting corporations may not be governed by UMAs. (UMAs are not permissible under the current CCA.)
The CCA requires not-for-profit corporations to have a minimum of three directors. Under the Act, the minimum number of directors for non-soliciting corporations will be reduced to one, while soliciting corporations will require a minimum of three directors, at least two of whom may not be officers or employees of the corporation or its affiliates (s.125).
Soliciting corporations must deliver their key documents to the Director. Subsection 172(1) of the Act lists the documents that the directors of a corporation must place before the members at each annual members' meeting. Pursuant to subsection 176(1), a soliciting corporation must also provide these documents to the Director within prescribed times. The documents in question include: (a) financial statements; (b) the report of the public accountant, if any; and (c) any further information relating to the financial position of the corporation, as may be required in the corporation's articles and by-laws.
Compared to non-soliciting corporations, soliciting corporations will be subject to more onerous audit requirements. The audit requirements set out in the Act are somewhat complex; they vary depending on a corporation's gross annual revenues, on whether the corporation is soliciting, and on whether certain elections are made by the corporation. A forthcoming bulletin will examine these audit requirements in detail.
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