CANADIAN BAR ASSOCIATION
Charity Law Online Presentation
Friday, May 22, 2020
Summary: After decades of seeking reforms to the corporate statutes governing non-profits and charities, lawyers across the country received a mishmash of statutes, each of which has its merits and demerits. But there is not one statute that stands out as superior to all the rest, and each statute has its often jaw-dropping shortcomings. Only three current statutes – Canada, B.C. and Saskatchewan – are modern. What would a non-share capital statute look like if it was drafted by the people who actually have to use it and justify it to their clients – charity and non-profit lawyers?
- A lot of things have happened since I first conceived of this talk. My intention was to take a lighthearted look at the current state of charity and non-profit corporate law ("CNFP"), maybe tell a few anecdotes about how we got here, and leave you with some suggestions about where we could strive to go in the next evolution of non-profit corporate statutes.
- We are living in very serious times. Oscar Wilde is often cited as the source of the quote "life is too important to be taken seriously", which strikes me as a useful philosophy. I thought "why not apply it to our current situation". So if you will allow me I intend to stick to my original plan. I hope you will find something in this that you can take forward to your own practices and with the corporate statutes that you live with in each of your provinces.
- I always like to start my talks with a quote from one of my two favourite people Sir Winston Churchill or Sir Arthur Conan Doyle. I couldn't find anything apropos from Sherlock Holmes, but Winston Churchill did have something cautionary to say about this:
- Legislative Cure-alls: I do not believe in looking about for some panacea or cure-all on which we should make our credit or fortunes trying to sell it like a patent medicine to all and sundry. It is easy to win applause by talking in an airy way about great new departures in policy, especially if all detailed proposals are avoided.1
- I have to make a disclaimer here. These are my personal opinions. I represent only myself. The Canadian and Ontario Bar Associations, and their respective members, and particularly those of the federal and provincial Charity and Not-for-Profit bars among us, are not responsible for my opinions and do not necessarily agree with them – although personal conversations over many years convince me that much of what I say will be agreeable to some of you. Some of my suggestions might be a bit provocative and you are welcome to challenge me on them – we need a healthy dialogue on the development of corporate law in our field.
- Since this is a virtual program, it is also an environmentally friendly one: no trees have been harmed in the making of this talk and no messy greenhouse gases have been expelled from airplanes, trains or automobiles for those of you who are in attendance. And it qualifies for CPD.
- I've been at this corporate law game for a long time. I first got involved when I discovered that I enjoyed working with little-known or off-the-beaten path types of corporate law. This included legislation dealing with trust companies, mortgage and loan corporations, condominiums, fraternal organizations and religious entities, as well as special acts applicable only to a few corporations. Inevitably this led me to an interest in non-share capital corporations under the old federal and provincial corporations acts. When the CNFP Law Section of the Ontario Bar Association was formed it seemed like a natural home for me. Here I would be among a small and extremely collegial group of people working with what to most lawyers would be esoteric and archaic legislation. When government approaches were made to consult on legislative reform late in the 20th century – how long ago that seems now! – I was eager to be involved. By the time that consultations began for both the federal and provincial legislation that led to the Canada Notfor- Profit Corporations Act ("CNCA") and the Ontario Not-for-Profit Corporations Act, 2010 ("ONCA") I was hooked and actively participated in consultation groups leading up to the passage of both acts. While these are the two primary acts I will focus on, I will also be referring to the other three modern acts – B.C. Societies Act; Saskatchewan Non-profit Corporations Act, 1995; and the Yukon Societies Act2, which has not yet been proclaimed.
- I think it's safe for me to say that I'm in the late stages of a career in which I have worked with a variety of statutes which can be described variously as "incomprehensible, esoteric, prescriptive, patronizing, laissez-faire, archaic, incomplete and contradictory", although not all at the same time. In fact this was what attracted me to the practice of the law of non-share capital corporations – i.e., the fact that the relevant statutes were not easy to learn, and were outside the main stream of corporate practice and thus a mystery to most of my business law colleagues. In fact, when the CNCA came down one of its not so subtle purposes was to track the format and language of the CBCA so closely that any corporate lawyer and even laypeople could work with it. Fortunately for the practices of us CNFP types, that goal failed miserably. However, if the governments of the day seriously want to accomplish that, some of what I am going to propose today might actually help them to do so.
- When I was called to the bar the major corporate statutes that every lawyer in Ontario was familiar with were the Canada Corporations Act ("CCA") which applied to all federal business and non-share corporations and the Ontario Corporations Act ("OCA") which fulfilled the same role in Ontario. All the other provinces also had archaic corporate statutes, based on different models, that applied to share and non-share corporations.
- The OCA was the principal corporate law statute in the Province of Ontario from 1907 for all types of corporations. It was substantially amended in 1953 and again in 2017, but is still very much an archaic and incomplete piece of legislation. It wasn't until the first version of the Ontario Business Corporations Act (""OBCA") was passed in 19703 and the Canada Business Corporations Act ("CBCA") came out in 1975 that there was a substantial difference between the corporate statutes which applied to business and non-share corporations.
- This was the point at which corporate law in the business world diverged from corporate law in the non-share world. It was the business corporate law that has continued to develop, while the non-share law remained mostly static until Saskatchewan, then Canada, proclaimed new statutes. The effect was that the vast majority of corporate lawyers lost their familiarity with the earlier statutes and left them as a legacy for non-share capital corporations, insurance corporations and the small number of other types of corporations which did not migrate into the business corporations acts, including, in the case of Ontario, share capital social clubs.
- The philosophy under which the federal and provincial companies branches administered the CCA and OCA also differed (and in Ontario still differs) from their business cousins.
- When I first started to practice, the philosophy under the CCA was that if it wasn't provided for or prohibited by the Act, you could do it. Until fairly recently, the most useful text under the CCA was Wegenast's, The Law of Canadian Companies, published in 1931. Despite the laissez-faire attitude, you still had to have your application for incorporation and your by-laws approved and any change to your by-laws could not come into effect until it had been approved by the Minister – which meant effectively by Industry Canada (which is now Corporations Canada). However, after a while it changed its policies to the more restrictive approach that if the Act didn't provide for it, you couldn't do it, except to the extent that they approved it. They provided standard special provisions for letters patent and a form of by-law that you should use – if you wanted to use your own version or vary or add to the standard by-law, that had to be approved too. But administration was still light-handed, lax corporate practice was overlooked, audits were finessed, which I'll talk about more below, you could have ex officio directors and . delegate voting. Most importantly, the sector didn't suffer from an excess of corporate democracy.
- Even in Ontario many lawyers prefer to incorporate charities under the CCA and now the CNCA, because it means not having to deal with the Ontario Public Guardian and Trustee (the "PGT"). That never bothered me and I chose which statute to incorporate under for other reasons. Practice under the OCA also has its patterns. While incorporation is still discretionary, for non-charities it is relatively straight-forward to have letters patent issued. There is no review of by-laws. Compliance with corporate law has generally been lightly enforced, even in the case of charities. Charities have a few more hurdles to jump than other non-share corporations. They must have their objects approved by the PGT and must include required special provisions. For an extra $100 you can have the Companies Branch process your application to incorporate in only a week. PGT approval isn't required if you use the pre-approved objects on the PGT's website. Any changes to letters patent of charities also require PGT approval.
- We are hearing encouraging news about the possibility of the ONCA finally coming into effect as early as the beginning of next year.
- So, to come back to what I said earlier, the CNCA and the ONCA are attempts to again bring the two different types of acts – business and non-share capital corporate law into the same statutory format, so all lawyers who practice corporate law can be familiar with them. Of course this philosophy would be fine if the cultures and needs of the two corporate sectors were sufficiently similar that a one size fits all corporate philosophy could work. But they aren't. Over many decades the non-share sector has developed its own ways of dealing with corporate governance, much of it as a result of the deficiencies or omissions in the two legacy statutes, but also because of the difference in the economic expectations of their stakeholders and the underlying philosophy of how the two different types of organizations think of themselves and their stakeholders.
1. (October 5, 1946, Blackpool, The Sinews of Peace: Post-War Speeches, London: Cassell, 1948, p.213)
2. SBC 2015, c 18; SS 1995, c N-4.2; SY 2018, c.15
3. The substantially revised current version, on which the ONCA is based, replaced it in 1982. The Business Corporations Act, R.S.O. 1970, c. 53, originally S.O. 1970, c. 25
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.