ARTICLE
30 October 2024

Legal Risk Management Checklist For Ontario-Based Not-For-Profits

The operations of not-for-profits are subject to an increasingly complex regulatory framework as well as the possibility of litigation occurring as a result of their operation is an ever-present reality.
Canada Corporate/Commercial Law

1 INTRODUCTION

The operations of not-for-profits are subject to an increasingly complex regulatory framework as well as the possibility of litigation occurring as a result of their operation is an ever-present reality. For the purposes of this Legal Risk Management Checklist, the term "not-for-profits" means organizations that are exempt from tax under subsection 149(1) of the Income Tax Act (Canada), and are structured as either not-for-profit corporations or unincorporated associations ("not-for-profits"), but it does not include registered charities or other qualified donees under the Income Tax Act (Canada).

The exposure of not-for-profits to liability goes further than the loss of assets and may possibly lead to the insolvency or winding up of a not-for-profit. Directors of not-for-profits may also face legal actions against themselves personally by members, third parties, and governmental authorities for breach of their duties as directors. Given these increased risks of potential liability to both not-for-profits and their directors, there is an increasing need to protect against lawsuits on a proactive basis. While these risks are, in some respects, not as extensive as those faced by charities (as outlined in a separate checklist),1 not-for-profits still face many of the same risks as charities.

The purpose of this legal risk management checklist for not-for-profits is to provide an outline of some of the more important issues that directors, officers and executive staff of not-for-profits, whether incorporated or not, may want to consider in ensuring due diligence in their organizations' operations. As it is impossible to adequately address all issues faced by not-for-profit organizations, this checklist provides only a general overview of the many considerations that not-for-profits and their boards of directors may need to be aware of to identify and manage legal risks, as well as a starting point for not-for-profits when consulting with their legal counsel.

2 IDENTIFICATION AND MANAGEMENT OF LEGAL RISKS

2.01 General overview of organizational and legal documentation

  1. a) Identify the existence and location of key organizational documents
  • Develop an inventory of key documents
  • Maintain central location for key documents
  • Identify key staff person, as well as board officer (normally the secretary) who are to be responsible for maintaining legal documents
  1. b) Identify key organizational documents for an unincorporated not-for-profit
  • Constitution and amendments, if applicable
  • Policy statements and procedures, if applicable
  • Minutes of directors' and members' meetings
  1. c) Identify key organizational documents for an incorporated not-for-profit
  • Letters patent (articles of continuance) or articles of incorporation if incorporated more recently, supplementary letters patent (articles of amendment) and restated articles of incorporation, if applicable
  • Membership covenant, if applicable
  • All by-laws (general operating by-law and amending by-laws) and any special resolutions (to amend the by-laws)
  • Mission statement, if applicable
  • Minutes of board of directors, members and committee meetings,
  • Up to date and accurate list of members
  • Directors', members', officers', debt and land ownership registers, if applicable
  • Directors' consents
  • Copies of government filings
  • Governance policies, g. conflict of interest, confidentiality policies and board code of conduct
  1. d) Identify other key legal documents
  • Leases/subleases, real property transfers and mortgages
  • Agency, partnership, association, contracts for service and joint venture agreements
  • Intellectual property license agreements
  • Business names, trademarks, section 9 (Trademarks Act) and domain name registrations
  • Membership agreements in federated, national and international structures
  • Operational risk management policies, g., vulnerable persons and volunteer policies
  • Insurance policies, including a historical record of insurance policies
  • Privacy policies
  • Anti-spam policies
  • Investment policies

2.02 Review of key documents for an unincorporated not-for-profit

  1. a) Are the purposes clearly stated in the constitution and are they not-for-profit?
  2. b) Do constitutional documents correctly reflect how the not-for-profit is actually

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Footnote

1 For charities, a separate Legal Risk Management Checklist for Ontario-Based Charities is also available at http://www.carters.ca/pub/checklst/Charity-Checklist.pdf.

* Terrance S. Carter, B.A., LL.B., TEP, Trademark Agent, is managing partner of Carters, and counsel to Fasken on charitable matters. Jacqueline M. Demczur, B.A., LL.B., is a partner at Carters, practicing in the area of charity and not-for-profit law. They would like to thank Adriel Clayton, B.A. (Hons.), J.D., Partner, and Cameron Axford, B.A. (Hons.), J.D., Associate, for their assistance in preparing this Checklist. ©2024 Carters Professional Corporation.

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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