On March 25, 2015 the British Columbia government introduced Bill 24 in the provincial legislature, to update and modernize the governance of non-profit entities in British Columbia. The Societies Act will repeal the existing Society Act and replace it with a more modern governance regime. This Article will provide a high-level overview of some of the key provisions of the new legislation. A copy of the full text of Bill 24 can be found on the legislature website . Future articles will each explore, in greater depth, various governance topics and issues highlighted below.
This Bill is the end result of a variety of stakeholder consultations which have occurred over the past several years. It follows on extensive feedback received after the release of a draft bill and white paper commentary in the summer of 2014. Bill 24 appears to be modelled closely on the approach taken in the 2014 white paper.
The government has indicated an intention to arrange to have the new legislation finalized and passed in this spring sitting of the legislature, which will conclude in May, 2015. After that, the in-force date of the new act (expected late 2016) will need to be coordinated with the finalization of necessary supporting regulations, and an awareness and educational program to assist British Columbia's 27,000 existing societies in transitioning into the new governance regime.
The new Societies Act would essentially preserve and build on the format and structure of the existing legislation. The government has decided not to adapt for non-profit purposes the structure and model of the Business Corporation Act (BC) applicable to share capital corporations. However, selected provisions from the BCA(BC) have been adapted and introduced into the proposed draft legislation where appropriate. Many of the changes result in a modernization of governance which will be welcomed. However, specific provisions may affect particular societies more than others, so all societies are urged to review the Bill for consideration of their own particular circumstances.
Once the new legislation comes into force the new governance rules, with certain specified exceptions, would automatically begin applying to all existing societies. Existing societies would also need to perform a transition event within two years to formally restate their Constitution and Bylaws to appear in conformity with the new regime.
A society will still have a Constitution and a set of Bylaws, copies of which will be filed electronically with the BC Registrar of Companies. Changes to those documents will result in an updated "consolidated" set of governance documents being on public file with the Registrar. The Constitution will only be permitted to contain the corporate name and a statement of purposes. Existing societies with other clauses set out in their Constitutions will need to move that extra material into the Bylaws on transition. "Unalterable" clauses will no longer be permitted to exist in the Constitution, and existing "unalterable" clauses would be able to be amended by special resolution (with certain exceptions). Electronic incorporation will now be possible, with only one member needed to effect incorporation.
MEMBER-FUNDED VS. PUBLICLY FUNDED
The new Societies Act makes a distinction between those societies which primarily rely only on member funding, and those which obtain public and government funding (including registered charities). Certain public disclosure requirements and governance restrictions will apply if a society uses public or government funding beyond a defined threshold. This is similar to the recently enacted federal legislation governing non-profits, although different tests and terminology are used to determine when a society falls into a particular category.
The legislation is drafted so that a society must deliberately elect and declare itself to be only "memberfunded", assuming it qualifies with the rules set out in the new legislation. If those circumstances ever change and a certain amount of public funding does exist (in amounts to be prescribed by regulation) then the society automatically transforms into a publicly funded society and can only revert back to memberfunded status by court order. The presumption (rightly or wrongly) is that most societies will be publicly funded and subject to the additional governance requirements set out below.
For publicly funded societies, a BC resident director will still be required and a minimum of three directors must be on the board (member-funded societies can have only one director, who may be non-resident). There will be restrictions on employees serving as directors, and a majority of the board must be independent. There will be compulsory public disclosure of compensation paid to directors and senior officials. Also, publicly funded societies will have an "asset lock" on windup, and may not distribute net assets to its membership.
DIRECTORS AND OFFICERS
Director duties and the rules surrounding conflict of interest are better codified in the new legislation, and there are also improved provisions concerning liability defences available to directors. The Bylaws may provide additional flexibility on the removal of directors. Ex officio directors will be permitted only in limited circumstances. The existing requirement for court approval of director indemnity payments would be removed. The new Societies Act introduces the concept of "senior managers" who may play a role in society governance and in some cases have statutory duties and obligations.
Classes of membership will be permitted; some classes can be non-voting; for voting classes, the rule is still one member, one vote (multiple voting schemes not permitted), but some delegate voting and imbalanced voting is permitted in the board election process in limited circumstances. Annual member meetings could now be conducted by unanimous written resolution in lieu of a meeting. Notice of meeting must be provided to each member. For larger societies, notice can occur through a program of selected email notifications combined with a website notice or publications.
Existing restrictive provisions on issuing debentures and other security documents will be removed. Greater flexibility also appears to be available concerning audit requirements.
The new legislation will introduce and codify such standard member remedies as oppression remedies and derivative actions, modelled on corporate law provisions. The white paper had also proposed a fairly unique complaint right of the general public (not just members or directors), but this additional remedy was the subject of substantial feedback in the consultation phase of the law reform process and does not appear in the proposed legislation.
The existing requirement to file all special resolutions with the Registrar will now (mercifully) be removed. Greater flexibility is available for amalgamations in BC, and for foreign legal entities migrating into this new governance regime. However, regrettably, there is no comparable ability of a BC society to migrate into any other jurisdictions of governance, not even the Canada Not for Profit Corporations Act.
EXTRA-PROVINCIAL REGISTRATION OF FOREIGN SOCIETIES
The new Societies Act would clarify and strengthen the circumstances under which societies operating in BC but not incorporated here would need to make filings with the BC Registrar of Companies and keep their registration current.
Existing legislative provisions on reporting societies, branch societies, and the law of ultra vires would all be removed. Existing reporting societies would have some legacy requirements apply to them unless and until steps are taken to modify those provisions. Societies will now have formal "registered offices" and specific lists of records which must be maintained (and can be accessed). The bylaws may restrict the ability of non-directors to access society records. Utilization of this provision may be appropriate for many larger societies.
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.