The Canada Not-for-profit Corporations Act (the Act) came into force on October 17, 2011. The Act replaces Part II of the Canada Corporations Act and changes the regime governing federal not-for-profit corporations (NFPs). A three-year transition period has now begun and will expire on October 17, 2014. All new incorporations of federal NFPs must now be made under the Act, and existing NFPs currently governed by Part II of the Canada Corporations Act will have to transition to the Act by October 17, 2014, or face mandatory dissolution.
Existing NFPs will be required to file articles of continuance under the Act, and these articles will replace an NFP's current letters patent; the NFP's board of directors will need to pass a resolution authorizing this application for continuance. NFPs have no choice but to apply for continuance in this way, and therefore no fee is associated with the application.
The articles of continuance must set out:
- the name of the NFP;
- the province where the NFP's registered office is to be situated;
- the classes, or regional or other groups, of members that the NFP is authorized to establish and, if there are two or more classes or groups, any voting rights attaching to those classes or groups;
- the number of directors or the minimum and maximum number of directors of the NFP;
- any restriction on the activities that the NFP may carry on;
- a statement of the purpose of the NFP; and
- a statement concerning the distribution of the NFP's property remaining on liquidation.
On continuance, an NFP must bring itself into compliance with the Act, and the Act contemplates that the articles of continuance may themselves effect amendments to the NFP's constating documents required to ensure compliance with the Act. It is therefore important that the articles of continuance be drafted with attention to the requirements of the Act.
Notably, by-laws will no longer require approval of the minister to become effective. Industry Canada will continue to keep a record of NFP by-laws, but each NFP will have the sole power to enact and amend by-laws. All directors must be elected by the members under the Act; ex-officio directors are no longer permitted.
The transition procedure to bring existing NFPs under the Act is discussed in more detail in our March 2011 bulletin entitled "Transition to and compliance with the new Canada Not-for-profit Corporations Act."
A significant innovation of the Act is the distinction between "soliciting" and "non-soliciting" corporations. A corporation which receives $10,000 or more in income from certain specified sources in a given financial year is designated as a soliciting corporation for approximately two years thereafter. Soliciting corporations are subject to more onerous governance, disclosure, and audit requirements. The new rules relating to soliciting corporations are discussed in greater detail in our bulletin of June 2011.
The Act strengthens and clarifies the rights of members of NFPs in several areas. It provides that non-voting members nonetheless shall have a right to vote on certain fundamental changes and on certain issues pertaining to their members' class. The Act sets out new rights and procedures for members to participate in governance, including members' right to make proposals. In non-soliciting corporations, it will be possible for the members to take over governance through unanimous members' agreements. The Act also incorporates modern provisions on remedies, including derivative actions and an oppression remedy. These matters are discussed in greater detail in our bulletins of April and May 2011.
A forthcoming bulletin will discuss the new audit requirements brought about by the Act.
Existing federally incorporated NFPs should consider the impact the Act will have on them. For some NFPs, continuance under the Act will be a straightforward process, but for NFPs with more intricate membership and governance structures, applying for continuance and coming into compliance may require more work.
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