Bylaws: Who Needs ‘Em
By: Adam Aptowitzer
The ongoing changeover of Federal corporations to the Canada Not for Profit Corporations Act is raising interesting questions about the bylaws that may have been used by a corporation since its inception. (It bears mentioning that the same questions arise in the context of Ontario non share capital corporations). We have written before that corporations continuing under the CNCA would be advised to undertake a bylaw review as part of the process. However, the general presumption that a corporation should have a full set of bylaws may itself need to be reconsidered.
The CNCA contains within it the broad outlines of corporate bylaws. Where the corporate bylaws are silent the scheme in the act will speak. In fact, with the exception of provisions for the admittance of members and notice the corporate bylaws can otherwise be silent.
In general, we have been advising against including only the minimum number of provisions as the system in the CNCA is rarely completely satisfactory. Nevertheless, just because it is prudent for corporate bylaws to deal with certain situations does not mean that it is equally prudent for the bylaws to deal with every situation.
Unlike the old act where bylaws required approval by Industry Canada, the new act simply requires approval by the members. This however can be easier said than done. Bylaw amendments can be subject to vetoes by different membership classes and special majorities in addition to the typical notice requirements and raised emotions that come with changes to fundamental documents. While not every element of the bylaws may be critical to the practical operation of the corporation, they are all subject to the same amending formula if contained within the bylaws. (We would also point out that with respect to religious organization it may be inappropriate to have the membership vote on a change which is required by a religious functionary).
Consequently, corporations may consider creating a second set of “shadow bylaws” which deal with issues which are important to the corporation but do not necessarily need to be in the official bylaws. Examples may include the corporate mission, theological directives or officer positions. All of these may be subject to occasional change without resorting to the bylaw amending formula or a meeting of the members.
These rules can be given any appropriate title and can contain any provisions decided by the members of the corporation. Similarly, the amending formula can be one decided upon by the membership. The document will not replace the bylaws but rather provide enhanced rules in those areas chosen by the membership. That said, it is important that these rules do not tread into areas which are governed by the bylaws or the act.
There are other drawbacks as well to a secondary set of bylaws. Perhaps the most obvious is the relative informality with which they may be treated. Corporate bylaws have the force of law behind them to ensure compliance another document purporting to be rules of the corporation simply do not. Moreover, the CNCA requires that official bylaws be filed with Industry Canada so it is always clear which bylaws are the official set belonging to the corporation. The same could not be said of another informal document.
Fundamentally, it will be up to each corporation to determine the appropriate course of action. But, to paraphrase Robert Frost sometimes taking the path less travelled makes all the difference when it comes to bylaws.