Modernization of the Not for Profit Sector – Are you Ready?

Thanks to Karen Reynar, a Corporate/Commercial Associate in our offices, for this guest blog! If you need more information with respect to your nonprofit, contact Karen at kreynar@burgarrowe.com

As you may know, the Ontario government recently passed the Not-for-Profit Corporations Act, 2010 (the “ONCA”) in an effort to modernize the legislation governing the not-for-profit sector in Ontario. The ONCA received Royal Assent on October 25, 2010, but will not come into force until a date to be named, which is expected to be in the fall of 2012.
On the day the ONCA is proclaimed into force two things will happen (i) the ONCA will apply to all not-for-profit corporations previously governed by the Corporations Act (Ontario), and (ii) the application of the Corporations Act (Ontario) to those corporations will be repealed.
In order to understand how the ONCA will apply to your not-for-profit, you must first understand that the ONCA divides not-for-profit corporations into (a) public benefit corporations and (b) non-public benefit corporations.

The first category of public benefit corporations is further broken down into (i) charitable public benefit corporations (a corporation incorporated for the relief of poverty, the advancement of education, the advancement of religion, or other charitable purpose), and (ii) non-charitable public benefit corporations (corporations that receive more than $10,000 in a financial year from the government or the public). Any corporation that is not a charitable public benefit corporation or a non-charitable public benefit corporation is a non-public benefit corporation.

It is important to determine whether your not-for-profit is a (a) charitable public benefit corporation, (b) a non-charitable public benefit corporation, or (c) a non-public benefit corporation because the ONCA treats each category differently, in particular with respect to audit and governance requirements.

Some other notable changes under the ONCA include those set out below, many of which have been introduced to mirror the Business Corporations Act (Ontario) which applies to for-profit business corporations in Ontario:

1. Incorporation will be done by Articles of Incorporation rather than Letters Patent, and the Articles of Incorporation may be filed electronically.
2. Not-for-profit corporations will enjoy all of the rights, powers and privileges of a natural person, subject only to voluntary restrictions in the articles. *Note: Charitable corporations will need to include restrictions in their articles if they wish to maintain status as a registered charity with the Canada Revenue Agency.
3. The ONCA introduces default by-laws that will be deemed to have been adopted if the board does not adopt standard organizational by-laws within 60 days of the date of incorporation.
4. The ONCA requires that any disciplinary action or termination of membership be done in good faith in a fair and reasonable manner. A procedure is fair and reasonable if the member is given 15 days notice and the right to be heard by someone able to revoke the termination or disciplinary action at least five days before it becomes effective.
It is worth noting that although the ONCA will immediately apply to not-for-profit corporations in Ontario once it is proclaimed into force, not-for-profits have three years to make the necessary amendments to their governing documents to bring them into compliance with the ONCA. After three years, any not-for-profit that has not yet updated their governing documents will be “deemed” into compliance. That said, in order to ensure a smooth transition and compliance with the new legislation, it makes good business sense to become familiar with the new statute now.