Getting on Board with the CNCA
By Alexandra Tzannidakis
You may have heard this already, but apparently it bears repeating:
All charities and non-profit organizations incorporated under Part II of the Canada Corporations Act need to actively ‘continue’ to the new Canada Not-for-profit Corporations Act if they wish to stay in business.
The new Act came into force on October 17, 2011 with a built-in transition period of three years. This means that all organizations incorporated under the old Act have until October 17, 2014 to ‘continue’ to the new Act. Despite the fact that we are now halfway through this transition period, the great majority of affected corporations have yet to take action.
If you are involved in running a charity or non-profit corporation, check which act it is incorporated under. If it is the old Canada Corporations Act, you need to start taking action right away. Failing to continue in time will lead to the government dissolving the corporation, which in the case of registered charities also means you will end up losing your charitable status.
October 2014 may seem a ways off yet, but time is shorter than you may think. The continuance process includes what can end up being a lengthy by-law review followed by approval of all the changes at a general members’ meeting. If there is only one annual meeting between now and October 2014, there is little room for error. By the time 2014 comes around, there will be even less.
The continuance process involves updating the corporation’s governing documents and by-laws to comply with the new law. Here are some of the major changes in the new Act that may affect your corporation:
1. No more ex officio directors. All directors must be elected at least once every four years. No one can be a director by default, e.g. by virtue of holding some other office.
2. Soliciting vs. non-soliciting distinction. ‘Soliciting’ corporations are (generally speaking) those that received more than $10,000 in public money in any one of the three previous years. Soliciting corporations have to abide by stricter rules concerning financial reviews, how many directors they have, and what happens to their assets on dissolution. They are also barred from entering into unanimous member agreements.
3. Unanimous member agreements. This new tool is available to non-soliciting corporations under the new act. It is very similar to a unanimous shareholder agreement, and can be used to transfer some of the powers (and liabilities) of the directors to the membership. Soliciting corporations are barred using these. Read more here.
4. Different financial review requirements. These vary based on the corporation’s revenue and whether it meets the Act’s definition of a ‘soliciting’ corporation. Soliciting corporations are subject to more stringent requirements, and their financial statements become public – not just the contents of their T3010s. Read more here.
5. No more completely ‘non-voting’ members. The new law sets out certain circumstances in which members get a class vote, regardless of whether they otherwise have the right to vote. This happens when the issue involves a fundamental change to the corporation.
This list is not exhaustive; these are some of the big changes, but there are many smaller details that have changed as well. The entire structure of the modern act is very different from the century-old one it has replaced.
We strongly recommend seeking legal advice for the process of shaping up your corporation to meet the new requirements and function properly under the new law. Drache Aptowitzer LLP has already helped many corporations successfully transition and we would be happy to help yours, too.