Those who want to incorporate a non-profit organization in Alberta are faced with the decision whether to incorporate under the basic Societies Act or the more complex Companies Act, Part 9 (if they choose not to be created under the new federal Canada Not-for-Profit Corporations Act). Any non-profits who come from outside of the Province of Alberta, and simply want to carry on their work or fundraise in Alberta, are faced with the confusing requirement to register as an extra-provincial Corporation under the Alberta Business Corporations Act. We are pleased to report that law reform in Alberta in this area is underway.
I was a member of the Expert Advisory Group that has participated in a consultation over the past year, resulting in the publication of a report for discussion by the Alberta Law Reform Institute (ALRI). This report proposes the creation of a new statute covering most non-profit incorporated organizations operating in the province. The report is an excellent summary of the common law roots of the legislation in Alberta, as well as the reform initiatives that have been undertaken in other Canadian jurisdictions. Canada, Saskatchewan, Ontario, and British Columbia have all recently undertaken reform of their non-profit legislation. A reading of the recommendations contained in this ALRI report shows that many lessons have been learned from challenges elsewhere, and the hope is that a “made in Alberta” law can be created that will not create similar issues faced in those other jurisdictions as their new laws move through the reform and enactment process.
Of the 62 recommendations in the ALRI report, the main one is that the current Societies Act and Companies Act, Part 9 be replaced with one single all-encompassing Act with different parts to accommodate different types of non-profit corporations. This Act would modernize the requirements for governance structures of non-profit corporations and recognize the sector’s need for easy compliance. The recommendation that non-profit corporations can incorporate as of right with no barriers and have the powers of a natural person will bring Alberta in line with other jurisdictions that provide this for non-profit corporations. It is made quite clear that the legislation will not attempt to deal with the tax exempt status of any organizations incorporated under the new legislation recognizing that is a matter of federal jurisdiction. To ease the uncertainty surrounding duties and liabilities of directors and officers under the current regime, the recommendation is to codify these duties and liabilities providing a dissent procedure and due diligence defense. Because protection of directors and officers is seen as desirable, indemnification procedures will also be codified.
The question of who can be a member, and what rights and roles members play in non-profit corporations, have been fully fleshed out and are the subject of many recommendations in the report. Allowing flexibility on issues such as membership transferability in the bylaws will empower non-profit corporations to create a structure that suits their specific type of organization.
When it came time to make recommendations concerning financial disclosure and review, it was helpful that the expert advisory group had already had experience with the levels of financial review required under the Canada Not-for-Profit Corporations Act. The ALRI recommendations lean towards further transparency with the stakeholders of the non-profit corporation. However, the onerous filing of financial statements with corporate authorities required in that Act has not been recommended. Indeed, unlike the Canada Not-for-Profit Corporations Act, the ALRI recommendations are that government corporate authorities will have little or no power over receiving financial statements or any application for exemption of any disclosure by a corporation of their financial position. It is felt by the ALRI that this is best left up to the courts. Probably the most refreshing recommendation for future non-profit corporations in Alberta would be recommendation 45 about the level of audit required for not-for-Profit Corporations and it is worth repeating here. Recommendation 45 says as follows: “The appropriate level of formality – internal audit, review engagement or external audit – required for the financial reports should be determined by members of the corporation itself. However, the new act should provide that a review engagement is to be conducted where a corporation’s by-laws are silent in this regard.” This would provide a welcome basic level of review. Members will indicate the level of financial audit or review that they feel is important for the kind of organization they are, but if they do not direct their mind to it there will always be that legislated standard for stakeholders to rely on.
The ALRI recognizes that corporate remedies to solve disputes within organizations in Alberta needs some attention and the reform report contains recommendations about procedures for members to deal with issues within non-profit corporations, and discusses internal remedies that should be created by the non-profit corporations to assist with disputes before resort to the court and an expensive litigation process.
Most important for any organization currently incorporated in Alberta, the ALRI report contains specific recommendations about the transition process, i.e. moving from the old legislative regime to a new way of being governed after the legislation is created and proclaimed in force. As with other Canadian jurisdictions, a three year transitional process is recommended, with the intention that any organizations that have not transitioned will be removed from the register. This will give all Alberta organizations a chance to look at their structure, their bylaws and their operating procedures and modernize them before a move into the new legislation is required.
However, as this is only a first step in the law reform process, it may be many years before actual reform is instituted in Alberta. In the meantime, unless piecemeal amendments are made to existing legislation, organizations will still have to make choices and operate under an out of date regime or avail themselves of the more progressive, but still not perfect, option of the federal statute and still face the need to register to carry on their mission and fundraising activities in Alberta.