As federal not-for-profits move to continue under the Canada Not-For-Profit Corporations Act (“CNCA”) before the October 17, 2014 deadline, it is useful to remember some special issues they may face.
The CNCA includes the concept of soliciting corporations. In general, entities are soliciting corporations under the CNCA if they receive $10,000 or more a year from the government or persons who are not members, directors, officers or employees of the organization or from other soliciting corporations. There are implications to being a soliciting corporation including: the type of financial review required; the number of directors (non-soliciting corporations may have one director; soliciting corporations must have three); who can be a director (no more than two directors can be officers or employees); what happens to the assets on liquidation or dissolution; whether it is possible to have a unanimous member agreement (non-soliciting corporations may; soliciting corporations may not.)
Corporations need to consider their sources of funding and their dealings with other soliciting corporations.
Ex officio directors
The CNCA does not contemplate the existence of ex officio directors. (This is in contrast to the new Ontario legislation). It is possible for directors to appoint up to one-third of the board, but corporations that have a structure in place that provides for a larger number of ex officio directors will need to consider other mechanisms for dealing with elections. For example, a national umbrella organization may have its board made up of the Presidents (or other designated officers) of the member provincial organizations. In that case, the corporation may want to create classes of members such that each class had a single member – a named province or territory – and that class was able to elect a single director.
Information in the articles
Currently, most non-share capital corporations have little (if anything) in their letters patent around membership rights. Under the CNCA, the articles (which will replace letters patent), must include the classes of membership and must state the voting rights (otherwise all classes vote.) The by-laws will set out the details regarding membership, such as the conditions for membership, the manner of transferring or withdrawing membership.
The CNCA provides for a number of members' rights, including:
- the right to requisition meetings
- the right to nominate directors
- the right to vote by proxy
- the right to access records and membership lists
- the right to submit proposals to meetings
There are details around each of these rights -- such as timing, percentage of members required to activate the right, and the like. There also are rights to dissent and force an appraisal under the CNCA.
The CNCA includes rights to vote even for non-voting members in certain circumstances. For example, there is a right to vote on the sale, lease or exchange of all or substantially all of the property of the corporation. In that case, the members of a class are entitled to vote separately as a class if they are affected differently from other classes. Similarly, a vote on dissolution requires a vote of each class whether or not the members are otherwise entitled to vote. There are also rights to vote on amalgamation and on continuance to another jurisdiction in certain circumstances. As well, amendments to the articles that impact on certain members' rights also require a vote by members even if the members are otherwise non-voting.
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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