Two Steps Forward One Step Back

Two Steps Forward One Step Back
By Joel Secter

There have been two noteworthy developments since writing about the draft regulations to the Canada Not-for-Profit Corporations Act (the “CNCA”) in our February newsletter: the first is the falling of the government and the second is the ‘pre-publication’ of the Canada Not-for-Profit Corporations Regulations (the “Regulations”). As the law will not be enacted until the Regulations are finalized, and in turn the Regulations will not be finalized until the new Minister of Industry signs off on them, it will likely be several more months before the CNCA becomes law. The net benefit of the delay is that it provides some additional time for federally incorporated corporations without share capital to prepare for the transition.

The Canada Corporations Act (CCA) rules apply until a Certificate of Continuance is issued to the corporation. Corporations Canada suggests that corporations follow a five-step transition process involving:

  1. Reviewing existing letters patent and by-laws
  2. Preparing articles
  3. Creating by-laws
  4. Getting members’ approval
  5. Filing the required documents with Corporations Canada

Beginning with the end in mind, all corporations will have three years after the CNCA comes into force to file the required documents, which include Articles of Continuance (Form 4031), Initial Registered Office Address and First Board of Directors (Form 4002) and NUANS Name Search Report (if the corporation’s name is to be changed). In the near future, the abovementioned forms will be available as fillable PDF files on the Corporations Canada website.

One big change under the new regime is that by-laws will no longer be reviewed and approved by the Minister. Corporations Canada will continue to serve as a repository where by-laws will be stored but that is all. Though they need not be filed to obtain the Certificate of Continuance, they will be required to be filed within twelve months of member approval.

While corporations that do not complete the transition will be dissolved by the Director appointed under the CNCA, dissolution will not occur automatically after three years. It remains unclear what will happen to corporations who do not transition within the recommended timeframe. According to a Corporations Canada representative, the intention is not to punish corporations who lag behind in the transition; rather, the objective is to do away with the archaic CCA and move everyone into the new corporate era under the CNCA.

Prior to the fall of the government, Corporations Canada anticipated that the CNCA would come into force in late spring 2011. Obviously that target is unreachable now and will more likely occur in the fall. Be that as it may, Corporations Canada plans to provide additional information over the next eighteen months, including:

  • Transition guide for existing not-for-profit corporations
  • Model articles and by-laws
  • Handbook for federal not-for-profit corporations
  • Reporting obligations under the CNCA
  • Policies on most applications under the CNCA (e.g. incorporation, revival and dissolution)

While the pre-publication of the proposed Regulations and recently held information sessions are definitely two steps forward, there is no doubt that a May election represents one step back. By all accounts, the upcoming election seriously jeopardizes the anticipated timeline and roll-out of the CNCA. While it is unclear how much longer we will have to wait, there are plenty of preliminary issues that corporations can start to consider in the meantime to make good use of the time.

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