Not-for-Profit Corporations Act, 2010 – Transition Considerations
As of October 19, 2021, the Not-For-Profit Corporations Act, 2010 is in force.
Your not-for-profit corporation previously governed under the Corporations Act should review and consider updating these documents by the end of the three-year transition period from the date the Not-For-Profit Corporations Act, 2010 came into force.
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The Ontario Business Registry launched on October 19, 2021.
Not-for-profit corporations can use the new registry to complete transactions with the government simply and quickly. The launch of the new registry also brings into force the Not-for-Profit Corporations Act, 2010, a modern legislative framework for the not-for-profit sector.
As of October 19, 2021, Ontario’s Not-for-Profit Corporations Act, 2010 (ONCA) is in force. Not-for-profit corporations previously governed under the Corporations Act have three years from the date ONCA comes into force to review and amend their documents to conform with the new act, and can amend their documents in stages rather than all at once.
Consider these steps during your review.
Step 1: Review letters patent and supplementary letters patent
Your not-for-profit corporation should consider:
- legal advice to ensure letters patent and supplementary letters patent:
- set out purposes that are reflective of its current and future activities and are consistent with other laws and court decisions
- do not conflict with ONCA or its regulations – if they do, provisions in ONCA or its regulations usually take priority
- professional tax advice regarding tax status and requirements – especially if it’s a charitable corporation
Keep the following things in mind as you review your letters patent and supplementary letters patent.
Public benefit corporations
If your corporation is a public benefit corporation, no more than one-third of your directors can be employees of the corporation or of any of its affiliates.
Check your documents for a clause stating how remaining assets are to be distributed if the corporation voluntarily dissolves:
- charitable corporation’s assets should go to a charitable corporation with similar purposes or to a government or government agency
- non-charitable public benefit corporation’s assets should go to another public benefit corporation with similar purposes or to a government or government agency
A corporation must have at least three directors but you can amend your articles to include a minimum or maximum number of directors, or a fixed number.
- section 22 for the number of directors required/permitted
Powers of corporation
Review the existing powers of corporations set out in your letters patent. Some questions to ask are:
- Are all powers still necessary given that ONCA gives corporations the capacity and, subject to the act, the rights, powers and privileges of a natural person (for example, a corporation may borrow money, unless the articles or the by-laws say otherwise)?
- Should any special provisions continue to restrict any activities or powers?
Review your membership structure. Ask yourself:
- does it still meet our needs?
- should there be more than one class or group of members?
- should we add a provision so membership can be transferred?
Previously under the Corporations Act, a corporation allowed multiple classes or groups of members in the by-laws, instead of the articles. So, if the corporation should have more than one class or group of members:
- the classes or groups of members must be set out in the articles under ONCA
- consider amending the special provisions to specifically provide for each class or group of members and their respective rights and conditions
Step 2: Review the by-laws
A standard organizational by-law:
- automatically applies to a corporation that does not pass an organizational by-law within 60 days after the date of its incorporation
- can be used by existing not-for-profit corporations previously governed under the Corporations Act to help them review and make any changes to their by-laws as needed to comply with ONCA
- ONCA, section 18 for the standard organizational by-law requirement
- The standard organizational by-law for default rules you can consider using to govern your corporation’s internal business
- "How to incorporate your not-for-profit under ONCA ” section of the guide to ONCA for rules, benefits and more about incorporating
Step 3: Review director and officer provisions
- whether directors must be members of the corporation
- whether to change the directors’ term of office (the maximum under ONCA is four years)
- whether existing provisions for directors' meetings should be changed
- revising any provision concerning indemnification and insurance
- revising any provisions relating to ex officio directors (people who automatically become directors because they hold a particular office such as being a director of another organization)
- revising the conflict of interest provisions for directors
- reviewing officer positions to determine if changes should be made to the corporation’s current governance structure
- section 23 for qualifications of directors
- section 24 for the election and appointment of directors
- section 46 for indemnification of directors and officers
- section 41 for disclosure of conflict of interest
Learn more about the key duties and obligations of directors and officers under ONCA
Step 4: Review member provisions
- that classes or groups of members must be set out in the articles under ONCA (if the current by-laws provide for more than one class or group of members, these provisions should now be transferred to the articles by amendment) (see membership above)
- if membership qualifications set out in by-laws should be changed
- if disciplinary provisions need to be amended in light of new rights given to members under ONCA
- if the minimum notice period for calling members' meetings should be changed
- providing a specific procedure for members to request a copy of the financial statements before the annual meeting of members
- if the voting method and members’ meetings should change to include alternatives (for example, consider allowing absentee voting by mail, telephone or computer)
- section 51 for power to discipline or terminate a member
- section 84 for presentation of annual financial statements to members
- section 67 for voting by mail or by telephonic or electronic means
Learn more about:
- the key rights and duties of members under ONCA
- the standard organizational by-law’s default disciplinary provision
Step 5: Review borrowing powers
Consider if any existing borrowing powers should be amended or deleted. For example:
- unless the articles or by-laws provide otherwise ONCA gives directors the power to borrow money without member authorization
- for corporations previously governed under the Corporations Act, the by-laws had to specifically provide for a power to borrow, which was to be confirmed by the members
- section 85 for borrowing powers
Step 6: General consideration
Review all other provisions in the by-laws to ensure that they are up-to-date and meet the requirements of ONCA and its regulations.
Considerations for social companies
Five-year transition period
Companies with a social purpose (i.e., the company’s purpose is in whole or in part of a social nature), such as share-capital social clubs fall under Part II of the Corporations Act.
Within five years of ONCA coming into force, these companies (if they were incorporated or continued under the Corporations Act) must continue as either:
- a non-share capital corporation under ONCA
- a co-operative corporation under the Co-operative Corporations Act
- a share capital corporation under the Business Corporations Act
Social companies that don’t continue under one of these Acts before the five-year deadline will automatically be dissolved one day after the five-year deadline.
If this happens, the company can revive at any time (within twenty-five years of ONCA coming into force) once it continues under one of the three acts listed above.
To continue under one of the three acts above, it’s important to determine the most effective way to transition, including the timing. With that in mind, social companies should get tax and legal advice and consider:
- have the shareholders made a significant capital contribution to the corporation? If so, do they want to continue as a share-capital corporation?
- is there a preference for being a business corporation rather than a co-operative corporation?
- if the corporation will continue as a share-capital corporation, what is the best class structure for shares?
- if the corporation will continue as a non-profit corporation under ONCA, what is the most appropriate membership structure?
- if the corporation is to become a not-for-profit corporation, which purposes and special provisions are appropriate to be included in the articles of continuance?
- if the corporation is to become a not-for-profit corporation under ONCA, the shares will have to be cancelled, so consider payment, if any, to shareholders in light of appropriate tax and corporate law implications
Note: Any application to continue must be made under the act under which the corporation wants to continue.
The shareholders must approve how the company will continue by a “special resolution,” which is a vote approved by at least two-thirds of the votes cast by shareholders at a shareholders meeting where there is quorum (the minimum number of present members needed to make the meeting valid) or if all voting shareholders consent in writing.
If the quorum cannot be met, a corporation may apply to court for an order waiving the requirement for shareholder approval.
Read section 2.1 of the Corporations Act for information on continuance of social companies under other acts.