Taking the Path Less Travelled – Continuing Provincially
By: Brent Randall
Last month, we looked at some reasons why an organization may not want to continue under the new Canada Not-for-profit Corporations Act (“the CNCA”). We also considered the option of reorganizing the corporation as a charitable trust as a means to avoid being subject to the CNCA. This month, we will look at what an organization that wants to maintain its corporate status, but does not want to continue under the CNCA, can do.
Federal corporations that wish to avoid the CNCA but remain a corporation also have the option to continue under the legislation of some provinces. Continuance would effectively treat the corporation as if it had been incorporated under the Provincial law from the beginning. Unfortunately, this is not necessarily a straightforward process, as many of the provinces do not allow organizations incorporated under the law of a foreign jurisdiction (which includes those incorporated Federally or in other provinces) to continue under their non-profit corporate legislation.
Three provinces that do allow for continuance into, or out of, their jurisdictions are Alberta, Saskatchewan and Manitoba. Ontario will be another, once the Not-for-Profit Corporations Act, 2010 comes into force later this year.
All of these Provincial laws have their potentially positive and negative aspects, depending on a corporation’s preferences. Alberta’s Companies Act requires financial disclosure and the appointment of an auditor at each annual meeting, while also setting out clear member rights. Saskatchewan’s The Non-profit Corporations Act, 1995 is in many ways the precursor to the CNCA. Manitoba’s The Corporations Act has similar provisions to the legislation in Alberta and Saskatchewan. One aspect to note is that all three of these provinces, unlike the CNCA, allow ex officio directors.
Alberta, Manitoba and Saskatchewan all require that corporations incorporated under their legislation have a registered office located in the province. While this is not a particularly onerous requirement, it could prove to be inconvenient for some organizations.
It should also be noted that the CNCA could inspire similar Provincial legislation across the country. Saskatchewan’s Non-profit Corporations Act, 1995 is similar in many ways to the CNCA. Ontario’s Not-for-Profit Corporations Act, 2010 has been given Royal Assent and is expected to come into force sometime early next year. While these Provincial laws are not identical to the CNCA, the important thing to be aware of is that future amendments to Provincial law could make the difficulties of continuing Provincially of little value in the end.
There is also an additional inconvenience that comes with being a non-share corporation incorporated under Part II of the Canada Corporations Act as the Act does not provide for export or import continuance between Federal and Provincial jurisdictions. This means that even if a corporation wants to avoid the CNCA, it will still be required to continue into it, only to continue out of it on the way to continuing Provincially. While this requirement is mostly an inconvenience, when added to the others it may be enough to make Provincial continuance not worth the trouble for some organizations. On the other hand, the CNCA may present a corporation with bigger inconveniences, such as the expense of a required audit, or the inability to have ex officio directors. Each corporation, after weighing its options, can ultimately determine for itself what is too much of an inconvenience and what is not.
The potential difficulties that may arise after continuance under Provincial jurisdiction also need to be recognized. The move to Provincial incorporation may allow the avoidance of a particular CNCA provision, but much of the CNCA’s provisions are found in the Provincial statutes as well. In the event that members of the corporation wish to be afforded rights found in the CNCA, but not in the Provincial legislation, they could certainly be added to the corporate by-laws. However, any process of amendment and approval of the by-laws can prove difficult, especially if the corporation has a diverse membership that demands rights like those in the new CNCA. This also says nothing of the problems that the prospect of Provincial continuance may cause with the corporation’s members from the outset.
There are also smaller problems that come with continuing Provincially, such as becoming familiar with the law of the new jurisdiction, or at least spending money on legal fees. Additionally, there are also the more general weaknesses that Provincial incorporation has compared to Federal, such as less name protection and the supposed recognition that comes with being Federally incorporated.
Corporations that wish to avoid the CNCA will need to carefully consider how important such avoidance is, and weigh out the costs and benefits of Provincial continuance. Much of the Provincial legislation that allows for continuance is similar to the CNCA, but the differences may be enough to make the choice valuable. Regardless of what corporations choose, they should decide soon as the CNCA’s October 17, 2014 deadline is only getting closer.