In many franchise systems, franchisors administer (or reserve
the right to later establish and administer) an advertising fund.
These ad funds may be administered directly through the franchisor
entity, or through a separate corporation or trust set up by the
franchisor. If your ad fund is administered through a federally
incorporated not-for-profit corporation, you will have to comply
with certain requirements set out in the new Canada
Not-for-profit Corporations Act (the "New Act").
The federal government proclaimed the New Act into force
effective October 17, 2011. The New Act is the first revision of
the statutory law governing federal not-for-profit corporations in
more than 60 years. As a result, it is game-changing legislation,
intended to bring greater transparency and accountability into the
federal not-for-profit sector. Franchisors who have incorporated a
not-for-profit company should be aware of some of the immediate
implications of the New Act.
Until your corporation applies to Industry Canada to be
continued (i.e. transferred) under the New Act, it will continue to
be governed by the Canada Corporations Act (the "Old
Act"). As a result, it will be "business as usual"
for your corporation until you complete that application. Your
corporation does not have the right to continue under any
legislation other than the New Act. This means that if an existing
not-for-profit corporation no longer wishes to be a federal
not-for-profit corporation, it must first continue under the New
Act and then continue a second time under the legislation of a
province or other jurisdiction with continuance rights that are
reciprocal to those in the New Act.
However, there is a sunset date for operations under the Old
Act. Significantly, if your existing not-for-profit corporation
does not apply for articles of continuance under the New Act by
October 17, 2014 (three years from the date the New Act came into
force), the federal government will cancel your corporation's
charter with no opportunity for revival. It will then cease to
Industry Canada has provided forms for applications for articles
of continuance. One of the mandatory requirements for the articles
of continuance will be a statement of "purposes" for the
applying corporation, though Canada Revenue Agency has not provided
any guidelines as to what such a statement must entail. There is no
filing fee charged for the continuance filing. As long as the form
is completed with the required information, the articles of
incorporation will be issued.
It should be noted that there is also new provincial legislation
dealing with not-for-profit corporations. The Ontario
Not-for-Profit Corporations Act, 2010 (the
"Ontario Act") has received Royal Assent, and it is
anticipated that it will be proclaimed into force in late 2012. In
contrast to the New Act, the Ontario Act, once proclaimed in force,
will immediately apply to all then existing Ontario not-for-profit
corporations without any requirement for action on their part.
One of the goals of the New Act is to conform the rules
governing federal not-for-profit corporations as closely as
possible to the rules governing for-profit corporations, and as
such, there are significant parallels between the New Act and the
Canada Business Corporations Act. Among other things, this
will mean that after your corporation continues under the New Act,
it will have all of the capacity of a natural person.
After continuance under the New Act, your corporation will also
be subject to stricter audit and reporting obligations. This
requirement is intended to create greater transparency and more
fulsome disclosure to members of the corporation, Industry Canada
and Canada Revenue Agency. As a result, you should consider
budgeting additional funds for accounting expenses. Of course,
there are a large number of other changes to governance and other
aspects of your corporation which will apply after it continues
under the New Act.
An advertising fund can be critical to a franchise system's
brand awareness, profitability, and overall success. Given that
failure to continue under the New Act within the proscribed
timeframe will result in the automatic and permanent dissolution of
any existing federal not-for-profit corporation, it is crucial that
franchisors fully inform themselves and comply with the New Act. We
would be happy to advise on and facilitate the planning and
transition from the Old Act to the New Act in a timely and
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.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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