Continuing under the new Ontario Not-for-Profit Corporations Act
Any readers involved with a not-for-profit that is incorporated under Ontario legislation should be aware that the law in this area is about to change. The current Ontario Corporations Act (OCA) hasn’t changed substantially in nearly 60 years, so the new Ontario Not-for-Profit Corporations Act (ONCA) that will replace it is likely be something of a shock to the system. However, given that the ONCA has been under discussion in the news and the not-for-profit sector for some time now, charitable corporations hopefully have some sense of what is to come.
The Need for Continuance
The new Act is tentatively due to come into force on January 1, 2013. It completely replaces the old letters patent system with a statutory one that is modelled on the Ontario Business Corporations Act and the federal Canada Not-for-Profit Corporations Act (CNCA). Since the change is so fundamental, any organizations that are incorporated under the OCA will undergo a transition to the new ONCA known as “continuance.”
Unlike transition to the new federal incorporation system under the CNCA, failing to continue under the new ONCA before the end of the three-year grace period will not result in the corporation being dissolved. But take note: if a corporation doesn’t continue in time, its letters patent and by-laws will automatically be deemed to comply with the ONCA. This means that any provisions that can’t be read as compliant with that Act will become invalid to the extent of the inconsistency.[1] So, although the corporation will continue to exist, its directors and members will have a great deal of trouble knowing which corporate provisions are reliable without constant legal advice. Since this confusion can also occur during the grace period because the new legislation will already technically be in effect, the wisest move is to continue under the ONCA as soon as possible.
The Continuance Process
Besides replacing the letters patent with “articles of continuance,” the ONCA introduces a number of fundamental changes that could have far-reaching consequences for a corporation. As part of continuance, OCA corporations will have to do some careful review and amendment of their governing documents to manage the implications of these changes. However, be aware that the ONCA forbids certain charter amendments in connection with an application for continuance. This complicated process is best undertaken with the help of experienced legal advice.
The first thing an OCA corporation should do is review its letters patent, supplementary letters patent, special resolutions and by-laws to determine where they may conflict with the new Act and what amendments need to be made. The corporation’s by-laws will also need to be amended or, possibly more simply, completely redrafted based on a model. It may take quite a while for the members and directors to fully consider these changes, so again it is better to start on this process sooner than later. As the Ontario government has not yet released the relevant regulations, any by-law review at this time would be premature, but we do expect the regulations to be released by January 1, 2013.
Based on their review, the corporation must then draw up Articles of Continuance and whatever other documents are necessary. Membership approval then needs to be sought for authorization of continuance. Once the corporation is authorized, it may file the required documents with the Ministry of Consumer Services (along with a fee, to be determined). If everything is in order, the Ministry will issue the corporation a Certificate of Continuance. Corporations that are registered charities will need to forward a copy of this Certificate along with their Articles of Continuance and new by-laws to the Canada Revenue Agency.
Proper and timely completion of this process will preserve the certainty and effectiveness of your corporation’s governing provisions, and allow the directors and members to fully understand and participate in the critical changes brought about by the new legislation. Drache Aptowitzer PC is experienced in not-for-profit continuances and would be pleased to advise you.
[1] ONCA ss.207(3)