Many individuals throughout Canada volunteer their time on the Boards of either charities or not-for-profits (“NPOs”) without realizing the duties imposed on them as a result of their position within the organization. Before accepting a position with a federally incorporated organization, individuals should ensure they know what is expected of them under the law.
Directors of a charitable or NPO corporation are perceived to be the directing minds of the corporation, they have the duty to manage and supervise the activities and affairs of the corporation, and are therefore expected to be responsible in law for the misdeeds of a corporation in certain instances. The Canada Not-for-profit Corporations Act (“CNCA”) legislates that Directors and Officers are required to “act honestly and in good faith with a view to the best interests of the corporation,” and to “exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.” In determining whether a Director or Officer has breached his/her duty to the corporation, the Director or Officer will be judged on an objective standard of care. In other words, a court will test the individual’s actions against that of a reasonably prudent person in comparable circumstances.
Along with acting honestly and in good faith, Directors and Officers are also required to comply with the CNCA and its Regulations, the corporation’s Articles and By-laws and any unanimous Member agreement. As well, the Directors (but not Officers) are subject to additional duties under the Act. For example, Directors must:
- ensure that they are familiar with all aspects of the operations of the corporation;
- ensure that if they miss a meeting of Directors, they review the minutes of the meeting to confirm they agree with all resolutions passed at the meeting. New rules in the CNCA deem Directors to have consented to a resolution if they do not register a dissent with the corporation; and
- ensure that they do not delegate certain powers to Officers or to committees of the Board that cannot be delegated.
Directors and Officers also have a duty to avoid a conflict of interest. In this regard, the CNCA legislates that:
- a Directors and/or Officer must disclose any personal interest they may have in a material contract with the Corporation;
- a Director and/or Officer make the disclosure at a specific time and in a specific manner; and
- if a Director or an Officer fails to make such a disclosure, the corporation or a Member may apply to a court to request the contract be set aside and the Director repay any profits or gain realized on the contract.
Depending on the provincial jurisdiction in Canada, a Director of a corporation that is also a registered charity, may not only be required to disclose his/her conflict of interest, but also to resign from the Board should the charity decide to proceed with a contract that results in a personal benefit to the Director. This is because at common law, Directors of incorporated charities cannot place their personal interests in conflict with their duty to the Corporation.
Individuals wishing to take on the role of a Director or Officer in a federally incorporated charity or NPO should ensure that they familiarize themselves with the CNCA, its Regulations, and the organization’s incorporating and governing documents before accepting such a responsibility.