Canada: Proposed Modernization Of Federal Not-For-Profit Legislation

The Canada Not-for-Profit Corporations Act (Bill C-62) received first reading in the House of Commons on June 13, 2008. The proposed Act will significantly overhaul and modernize the Canadian federal not-for-profit legislation, which has not been substantially amended since 1917. The proposed Act uses the governance framework of the Canada Business Corporations Act (CBCA) and replaces the Canada Corporations Act (CCA) — in particular, Part II of the CCA, which currently governs about 19,000 not-for-profit corporations.

Two features of the Part II CCA regime that have created complexities and have been burdensome for companies are:

  • the procedure and documentation for incorporation of not-for-profit corporations; and

  • the financial reporting requirements.

Under the proposed Act, the letters patent regime will be removed, including the requirement for ministerial review and approval of the letters patent and bylaws. A quicker and more streamlined "as of right" system of incorporation will be implemented. Incorporation documents, which can be filed electronically, will be submitted to the Director appointed under the proposed Act along with the requisite fees. The incorporation documents will require information pertaining to classes of members, voting rights of members and number of directors.

Under Part II of the CCA, corporations are required to appoint auditors and prepare audited financial statements. The proposed Act recognizes that not all not-for-profit corporations should be subject to the same financial requirements. It divides organizations into "soliciting corporations," which are corporations that solicit public donations or receive government assistance, and "non-soliciting" corporations. For soliciting corporations, the size of the annual revenues of the organization will determine the type of audit required, whether a full audit, a review engagement completed by an auditor, or (with the consent of members) no review. However, the proposed Act contains a new requirement that financial statements for all not-for-profit corporations be made available to their members, directors and officers, as well as the Director under the proposed Act. Additionally, soliciting corporations must make their financial statements publicly available.

The proposed Act introduces a modern corporate regime for directors, officers and members. There has been considerable confusion regarding the liabilities of the directors under Part II of the CCA, particularly director concerns with respect to personal liabilities. This uncertainty may have resulted in hesitation to take on the role as a director of a not-for-profit corporation. Under the proposed Act, the rights, duties on the part of individuals (including the standard for the duty of care), and the liabilities of directors and officers will be set out in a fashion similar to the CBCA regime. The proposed Act will also set out defences that are available to directors and officers.

The rights of members will be set out in detail. Previously, some of these rights were not available to members of a not-for-profit corporation because the regime and concepts of the CCA were outdated. Under the proposed Act, the members will have:

  • additional voting rights;

  • rights to call special meetings;

  • better access to information about the corporation; and

  • a more complete regime of remedies for members, as well as for other interested parties such as creditors, in the event of oppressive or unfairly prejudicial treatment by the corporation.

In the event that Bill C-62 and the proposed regulations come into force, every not-for-profit corporation under Part II of the CCA will have a three-year period in which to continue under the new Act. Specific details of the transition requirements will be available if and when Bill C-62 comes into force.

The proposed Act will require that some 12 share capital business corporations created by Special Acts of Parliament and governed under Part IV of the CCA be continued under the CBCA.

McCarthy Tétrault Notes:

If Bill C-62 comes into force, federal not-for-profit corporations will benefit from having a complete and modern governance regime.

Existing not-for-profit corporations governed by the current patchwork regime of the CCA will face considerable transitional issues, but the proposed Act will facilitate the incorporation of new not-for-profit corporations.

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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