Canada: Bill 85 Proposes Amendments To The Ontario Not-For-Profit Corporations Act And Other Corporate Statutes

On June 5, 2013, the Minister of Consumer Services introduced Bill 85, the Companies Statute Law Amendment Act, 2013 ("Bill 85").  The more substantive amendments proposed relate to the Not-for-Profit Corporations Act, 2010 (Ontario) (the "ONCA"), which has been enacted but not yet proclaimed. In particular, the Bill proposes to clarify certain matters under the ONCA relating to class voting rights for non-voting members, the process for transition to the new Act, approval requirements for continuance of share-capital corporations with social objects that are currently governed by the Ontario Corporations Act, and other changes.

In addition, Bill 85 contemplates consequential amendments to 79 other Acts to update references to the ONCA and also contains numerous other housekeeping and other minor amendments to various other statutes.

At this time, Bill 85 has only passed first reading so it is possible that further amendments will be made as the Bill progresses. We will keep you apprised as the Bill progresses.

Key Changes Proposed with Respect to the ONCA

Delay in the Extension of Voting Rights to Non-Voting Members for at Least 3 Years

In order to address concerns raised by the not-for-profit sector, the Government is proposing to delay the effective date of the provisions extending voting rights to non-voting members for certain fundamental decisions until at least 3 years after the ONCA begins to apply (now expected to be in early 2014).   Under the current wording, these voting rights would be effective immediately.

This delay would give more time for not-for-profit corporations with one or more non-voting classes of members to consider their options in light of this change.  Options that may be considered include: retaining, consolidating or removing non-voting classes. 

Updates to Transition Provisions

Bill 85 proposes to clarify previously enacted transition provisions of the ONCA.

The Bill would clarify that letters patent and other corporate constating documents, by-laws and special resolutions that were valid before the ONCA came into force, will, even if in conflict with the ONCA, continue to be valid until the end of the transition period.  The continued validity of conflicting provisions during the transition period was assumed but not clearly stated in the current wording.  The ONCA will continue to provide that at the end of the transition period, conflicting provisions in corporate governing documents will be deemed to be amended to the extent necessary to conform with all requirements of the ONCA.

The re-enacted transition provisions would also expressly require that, following proclamation of the ONCA, any amendments made to the by-laws and articles be made in conformity with the ONCA.  It is unclear, as presently drafted, whether this requirement would apply only to the particular provision(s) of the articles or by-laws that is / are proposed to be amended or to the entirety of these documents (e.g. whether a minor amendment to one provision in a corporation's general by-laws would necessitate amendments to all other non-conforming provisions in their by-laws).  As the Bill is only in first reading, this will hopefully be clarified in subsequent readings.

The Bill would also require all provisions that are currently in the by-laws or a special resolution, but which will be required by the ONCA to be added to the articles, be so added before the end of the transition period, failing which such provisions will become invalid.  The drafting of this provision is somewhat unclear.  Rather than invalidating offending provisions in by-laws and special resolutions, it would appear to be much clearer to simply require corporations to file articles of amendment before the end of the transition period to the extent that their current letters patent do not comply with requirements of the ONCA. Again, it is hoped that this provision will be clarified in subsequent readings of the Bill.

Requirement for Class Vote to Approve Continuance for Share-Capital Corporations with Social Objects 

The ONCA provides that share-capital corporations with wholly or partly social objects that are currently incorporated under the Corporations Act (Ontario) (the "OCA") will have 5 years to continue under the ONCA (as a non-share capital corporation), the Co-operative Corporations Act (as a co-operative) or the OBCA (as a share-capital corporation).  Bill 85 proposes to re-enact these continuance provisions to specify that any such continuance would need to be approved by special resolution of each class of shareholder by separate class vote.

Consents of Directors Must Be in Writing 

Directors' consents to serve as directors would be required to be in writing (this was previously not specified). 

Public Benefit Corporation $10,000 Threshold Can Be Amended by Regulation

Bill 85 would add flexibility by providing that the ONCA's current $10,000 threshold for defining non-charitable public benefit corporations can be updated in the future by regulation.

Other Changes

There are various housekeeping and other minor amendments proposed to the OBCA, the Business Names Act, the OCA, the Corporations Information Act, the Limited Partnerships Act and the ONCA, including:

• Expanded regulation-making powers for the Minister and expanded powers and ability to delegate for the Director or Registrar under the statutes (e.g. to set required content of forms, requirements for the execution and methods of filing of documents, etc.).
• Updates across all of the statutes to better reflect methods for electronic documentation and filing and to contemplate electronic signatures.  In addition, a common definition of "telephonic and electronic means" has been implemented across all of the Acts that will permit new forms of technology to be used without being specifically authorized by regulation.
• Updates to the OBCA and the OCA to permit continuance to the ONCA for corporations with share capital.
• Added sections to the OBCA and the ONCA which would authorize the Director to require that a directors' consent to serve as director be filed with the Director.

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.