By Joel Secter
The Canada Not-for-profit Corporations Act (CNCA) establishes a new set of rules for not-for-profit corporations in Canada. These new rules replace the Canada Corporations Act (CCA). Part 19 of the CNCA applies to any corporation without share capital incorporated by a special act of Parliament and not continued under another act. For this reason, federal special act corporations are advised to review the CNCA closely in order to determine its application to their corporation.
Generally speaking, federal special act corporations have three options: (1) do nothing, in which case Part 19 of the CNCA applies; (2) continue under the CNCA, in which case the corporation’s special legislation would no longer govern; and (3) amend their special legislation to exclude the CNCA, in which case Part 19 would not apply.
By way of background, it may be helpful to know that at one time all corporations were created by special acts. Over time, the process of enacting legislation for each corporation became inefficient. Federal, provincial and territorial governments introduced general corporate statutes to streamline the establishment process and standardize the operations of not-for-profit corporations. The CNCA is an example of such a general act.
Though incorporating under a general act is now the norm, special legislation is still utilized to give corporations special powers or to impose specific restrictions. Along these lines, special acts are used to establish, among other things, municipalities, universities, hospitals and public and private institutions.
The fact that Part 19 of the CNCA applies to all special act corporations without share capital should not come as a complete surprise considering that federal special act corporations were subject to Part III of the CCA until it was repealed in 2009 when Parliament passed the CNCA. Some of the requirements imposed on special act corporations under the CNCA are the same as those imposed under the CCA, such as the requirement to hold annual meetings and file an annual return. In addition, just as the CCA permitted special act corporations to apply for letters patent and continue under Part II of the CCA, the CNCA allows special act corporations to apply for a Certificate of Continuance and continue under the CNCA.
There are a few notable differences with respect to the application of the CNCA to special act corporations as compared to the CCA. First, the CNCA allows Corporations Canada to issue a Certificate of Change of Name to a special act corporation without the need for the corporation to amend its special legislation. Second, the CNCA provides that special act corporations now have the capacity, rights, powers and privileges of a natural person, meaning there is no longer the same concern about an act of the corporation being ultra vires. Finally, the CNCA permits any interested person to apply to a court for an order dissolving a corporation in a limited number of circumstances.
Perhaps the most common reason why special act corporations choose to continue under the CNCA is that it provides specific rules for making changes to a corporation’s articles and by-laws whereas special legislation requires an act of Parliament to change. That being said, the modern corporate law may not be as flexible as a special act in other ways. With respect to excluding the CNCA altogether, many federal special act corporations established before the advent of the CNCA excluded Part III of the CCA and its related provisions so presumably excluding Part 19 of the CNCA is also an option for these corporations.
It goes without saying that each corporation has its own unique set of circumstances and must consider the advantages and disadvantages of the different options outlined.