After several attempts over the past five years, Canada
is finally getting new legislation to govern federal non-profit
corporations. Bill C-4, An Act respecting not-for-profit
corporations and certain other corporations (Act) has been set
up to close many of the legislative gaps which exist under the
current Canada Corporations Act (CCA). It is important to
note that these changes will only affect non-profit corporations
that are incorporated under (and governed by) federal
While it will not take effect for some time, the Act will
eventually replace the CCA as the governing legislation for federal
non-profits. The following discussion sets out some of the key
features of the Act and how these features may bring new structure
and clarity to federal non-profits:
Timing The Act will not take effect until it
is proclaimed into force by an Order in Council. Once that occurs,
non-profits will have three years to apply for continuation under
the Act. The application process will be free of charge. Those that
do not apply may risk dissolution.
Process of Incorporation Non-profits will
incorporate by filing articles of incorporation, rather than
letters patent filed under the CCA. Further, non-profits will now
be able to incorporate "as of right." This means that
Industry Canada will no longer conduct discretionary reviews of a
non-profit's articles and by-laws. So long as the non-profit
meets the administrative requirements under the Act, its
application will be accepted. Other than soliciting corporations,
non-profits will be allowed to have only one director.
"Soliciting Corporations" The Act
includes a new concept known as a "soliciting
corporation." As prescribed in the draft regulations, a
non-profit will be considered a soliciting corporation if it
received at least $10,000 of income in the form of certain
donations, gifts and grants in its last three years. Soliciting
corporations are subject to more stringent requirements than
non-soliciting corporations because they are operated for the
public benefit and must distribute their property on dissolution to
a qualified donee (e.g., a charity) under the Income Tax
Act (Canada). For example, they must have a minimum of three
directors and a public accountant, and must provide copies of their
financial statements to Industry Canada.
Duties of Directors While the CCA is silent on
the issue of directors' duties, the Act clearly sets out an
objective standard of care for directors of non-profits. These
directors must: (a) act honestly and in good faith, with a view to
the best interests of the corporation; and (b) exercise the care,
diligence and skill that a reasonably prudent person would exercise
in comparable circumstances. Furthermore, certain defences to
director liability are expressly identified in the Act, including
reliance on professionals. The indemnification of directors by the
corporation involves a process and rules that are similar to those
under for-profit legislation, including allowing for the advance of
money in certain circumstances.
Classes and Rights of Members While
non-profits were able to describe different membership classes in
their by-laws under the CCA, the Act requires them to do so in
their articles. The creation of a special class of members
now requires a special resolution (i.e., the approval of two-thirds
of the members). Any member of a non-profit may put forward a
proposal to make, amend or repeal a by-law. Members of a
non-soliciting corporation may also enter into a unanimous member
agreement restricting some (or all) of the powers of the
Audit Requirements Under the Act, non-profits
are required to appoint a public accountant to conduct annual
audits. A non-profit may be exempt from this requirement and
considered a "designated corporation" under the Act if
its annual revenue falls below a prescribed amount. Both soliciting
corporations and non-soliciting corporations may be considered
designated corporations, depending on their revenues.
While the Act may not take effect for some time, federal
non-profits can begin preparing now for the changes to come by
reviewing their letters patent and by-laws, and by considering
whether any changes are required. Once the Act is proclaimed into
force, existing federal non-profits will have three years within
which to file articles of continuance which can amend the
non-profit's existing letters patent, if required.
Janet Sim is a partner in the firm's
Toronto office where she leads the Estates and Trusts Group.
Rachel Halperin is an associate in the Corporate
Practice Group in the firm's Toronto office.
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
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.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).