Working Around Ban on Ex Officio Directors
A complication that arises under the new Canada Not-for-Profit Corporations Act (the “Act”) is that it does not permit ex officio directors.[1] A director is ex officio when appointed to a board by virtue of holding another office or position. Such directors are excluded by subsection 128(3) of the Act, which requires that members elect directors by ordinary resolution at the annual meeting. Not surprisingly, many organizations are seeking ways to work around this rule in order to ensure that individuals in designated offices or positions are represented on their board. Assuming that a corporation adheres to the basic prohibition, there are a number of ways to effectively work around it.
For corporations with only one class of members, the simplest thing to do is to establish specific qualifications for directors. For example, a corporation’s by-laws might require that a board position be available to the past chair for a single term. While the members would still need to elect the individual by ordinary resolution, this option would essentially reserve a seat on the board for them. Since there are few restrictions on the qualifications for directors, this option is quite versatile.
In other cases, a corporation may decide to establish two or more classes of members. A national organization, for example, might want to have a representative from each region on the board. In such a case, the corporation could establish a separate class of members for each region. Each region would have the right to elect, as a class, a director to the board. This would ensure that only the members of each region vote on their representative to the board. Incidentally, it bears mentioning that where a corporation has more than one class of members, those members will be entitled to vote separately as a class on proposals to make certain fundamental changes to the corporation.[2]
Keeping in mind that having two or more classes of members may give rise to other issues, another available option is to have single-member classes of members. In other words, the articles could create a class of members that only one individual is qualified to join (e.g. the past chair from time to time). This sole member would be entitled to elect a director to the board, which could be themselves. While the creation of single-member classes may complicate an otherwise simple by-law, it is arguably an effective way of ensuring that individuals occupying certain offices or positions are elected to the board.
Yet another option is afforded by subsection 128(8) of the Act, which states that the articles may provide for the directors to appoint one or more additional directors. Any such additional director would serve for a term expiring not later than the close of the next annual meeting of members. The total number of directors so appointed may not exceed one-third of the number of directors elected at the previous annual meeting of members. A corporation could conceivably adopt a policy requiring the directors to appoint the past chair to the board, the caveat being that a policy is instructive and not prescriptive. In other words, the board could ignore the policy, in which case the members’ recourse would be to remove and replace the directors in accordance with the by-laws.
Finally, as a last resort, there is always the option of moving the corporation into a jurisdiction that permits ex officio directors, such as Saskatchewan. This will be a more complicated process for organizations incorporated under Part II of the old Canada Corporations Act (“CCA”), because bypassing the new Act is not an option. All CCA Part II corporations will need to continue to the new Act before being able to export to any other provincial jurisdiction.
[1] By contrast, the new Ontario Not-for-Profit Corporations Act does allow ex officio directors.
[2] See subsection 199(1) of the Act.