On March 25, 2015, Minister of Finance Michael de Jong introduced Bill 24, the Societies Act, in the British Columbia Legislature. The Bill, which received Royal Assent on May 14, 2015, substantially reforms the current not-for-profit legislative regime. It repeals and replaces the existing Society Act, which governed over 27,000 not-for-profit legal entities in British Columbia. Some sections of the new Societies Act are now in force; however, most will come into force by regulation at a future date.
The new Societies Act is intended to provide greater flexibility to the internal governance of not-for-profit organizations, while enhancing accountability measures among charities and publicly funded societies. Some of the many changes include implementing new corporate governance procedures, as well as distinguishing between publicly funded societies and member-funded societies (being those societies funded primarily by its members to carry on activities for the benefit of its members).
Having recently received Royal Assent, it is anticipated that the Societies Act will come into force in approximately 18 months. Once in force, pre-existing societies will have two years to transition under the Societies Act. Each pre-existing society must do so by filing with the registrar a transition application consisting of the constitution, bylaws, and a statement of directors and registered office for the society.
This transition can serve as an opportunity for existing societies to review and update their constitution and bylaws. A society may alter or create entirely new bylaws at the time of its transition if authorized by special resolution of its voting members, subject only to any existing unalterable or reporting society provisions which must remain.
Corporate and Governance Procedures
The Act introduces a number of new corporate governance concepts, many of which are similar to those contained in the British Columbia Business Corporations Act. Such changes include:
- allowing voting members to pass written consent resolutions instead of holding physical general meetings;
- reducing the minimum number of member votes required to pass a special resolution from three-quarters to two thirds, unless the society's bylaws provide otherwise;
- allowing voting members to appoint a proxy holder entitled to vote at more than one meeting if permitted by the bylaws, and allowing proxy holders to vote at the adjournment of the meeting for which they were appointed;
- allowing members to participate in general meetings by telephone or other communications medium;
- allowing members (though not less than 2 together) to bring forward proposals at an annual general meeting provided the proposing members make up at least 5% of the voting membership (unless otherwise indicated in the bylaws);
- allowing general meetings to be held outside British Columbia if a location in British Columbia is not provided for in the bylaws and a location outside the province is agreed on by every voting member before the meeting is held;
- requiring that directors confirm their appointment by written consent if they are not in attendance at the meeting in which they were appointed director;
- allowing the appointment of senior managers to exercise the authority of directors to manage the activities of the society; and
- clarifying in detail a society's record keeping obligations and who has access to such records.
Requirements for Publicly Funded Societies and Charities
Further, the new Societies Act will impose new accountability and transparency measures on publicly funded societies and charities, whereas member-funded societies will be exempt from such provisions. Some of these measures specific to non-member-funded societies are:
- requiring a minimum of three directors, a majority of whom are not employees or contractors of the society, and one of which must be a resident of British Columbia (as opposed to a minimum of one director with no residency or employment-related requirements for member-funded societies);
- requiring that the compensation of its directors and highest remunerated employees be publicly disclosed;
- requiring disclosure of its financial statements to members of the public who request it; and
- upon dissolution and liquidation, limiting distribution of assets to certain "qualified recipients" such as other non-member-funded societies, community service cooperatives, or charitable entities.
Other Noteworthy Changes
Further significant changes include:
- reducing the threshold number of persons required to form and incorporate a society from five to one;
- permitting societies to incorporate and complete certain corporate filings electronically with the registrar;
- providing that directors must be a minimum of 18 years of age, subject to certain exceptions in the regulations which allow for directors that are 16 or 17 years of age;
- permitting societies to alter previously unalterable provisions in a society's bylaws by way of special resolution with written consent of the designated minister;
- requiring non-share corporations formed in foreign jurisdictions to register in British Columbia if they carry on activities in the province;
- allowing non-share corporations formed in foreign jurisdictions to apply for continuance into British Columbia;
- allowing members to apply to the court alleging that a society's conduct is oppressive or unfairly prejudicial towards its members;
- allowing a society member, director or an appropriate person as determined by the court to prosecute or defend a legal proceeding on behalf of a society;
- allowing a society member, director or an appropriate person as determined by the court to make an application to the court to correct any contravention of the Act or regulations or defects in the conduct of a society's activities or internal affairs;
- allowing restoration of a society without court approval;
- no longer requiring member approval for the borrowing of money and issuance of debt obligations by a society, unless restricted by the bylaws;
- providing for the liability of directors to the society for money or other property distributed contrary to the bylaws or the Act;
- requiring a society to indemnify current and previous directors or senior managers for expenses incurred in a legal proceedings where the director or senior manager was found not to have committed any fault or omission;
- clarifying that certain provisions of the Act pertaining to obligations and liabilities of directors apply to a person who is not a director of a society but is performing the functions of a director; and
- providing that a director's disclosure of a material interest in a contract or transaction contemplated by the society must be evidenced in the records of the society, that the disclosing director must abstain from voting on the matter at issue and leave any meeting where the matter is being discussed.
Lawson Lundell will continue to provide updates as sections of the Societies Act come into force, and we look forward to assisting both existing clients and new clients with respect to the new regime, including advising existing societies on the transition of their organizations under the new legislation.
A full copy of Bill 24 may be found online at: https://www.leg.bc.ca/40th4th/votes/progress-of-bills.htm
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.