Securing legal and operation nexus between Canadian charities and overseas counterparts
Mark S. Anshan
In an earlier article we discussed the means by which parent non profits can maintain control of subsidiary non profits as part of the credit proofing approach to protecting assets. The same principles and solutions can be applied to foreign charities that maintain operating charities in Canada to raise funds and support their work. There are, indeed, many charities that operate in Canada as “Friends of..” or “Canadian Committee of..” or other such names.
There have been situations where foreign charities find that, having established a Canadian charity to support their work, the legal structure that is in place does not align well with the goals of the foreign charity and conflicts arise between the foreign and Canadian based charity. The challenge is to maintain proper control over the Canadian subsidiary while at the same time ensuring that the Canadian charity (as an independent corporation) can maintain the independence required of Canadian corporations and the directors fulfill their fiduciary obligations.
A practical solution is for the foreign charity to become the sole voting member of the Canadian charity. This is done in the by-law under Membership. Through this provision, the foreign charity is the only voting member of the Canadian charity, i.e. elects the Board of Directors. Under Canadian law, a majority of the directors must be Canadian residents and therefore, in electing the directors, the foreign charity as sole voting member, has the legal requirement to elect Canadian residents to the Board of Directors. Of course, this makes sense from a practical perspective as a foreign charity will not achieve much traction in Canada if it does not have a strong group of Canadian supporters for its projects and programs.
As important as securing the legal nexus between a foreign charity and its Canadian charity is the overriding important operational and organizational relationship that needs to be in place so that both charities are working in strong collaboration to achieve the overall objectives of each one. Legal and organizational structures are important – an obvious point. Recruiting the right personnel to work in the Canadian charity who understand the goals and how collaboration needs to work with the foreign charity staff (colleagues) will ultimately ensure that the objectives will be met and the charities will operate effectively.
The starting point is to make sure the legal nexus between the two charities is well established. With the Canada Not-for-profit Corporations Act (CNCA) now in force and the Ontario Not-for-profit Corporations Act (ONCA) soon to be force, it is a good opportunity to review the legal relationship between foreign charities and their Canadian counterparts as the Canadian charities must now review and make required amendments to their by-laws and Letters Patent.