By Richard Bridge
Richard Bridge is a lawyer based in Nova Scotia’s Annapolis Valley. His primary area of practice is charity and non-profit law. He is the author of a CSAE ebook on this topic: Making Sense of the New Canada Not-for-Profit Corporations Act.
If you are a board member or a senior staff person at one of the approximately 19,000 non-profit organizations and charities in Canada that are federally incorporated, you need to become familiar with the new Canada Not-for-profit Corporations Act (“the new Act”). Visit Industry Canada's website for the complete Act.
The new Act replaces Part II of the Canada Corporations Act, the old and inadequate legislation that has been in place since 1917. The new Act was approved by Parliament and received Royal Assent on June 23, 2009 and will be in force on October 17, 2011.
Here, in summary form, are five of many practical reasons for you to get to know the new Act.
1. Comply or be dissolved
The first and most dramatic reason you must not ignore the new Act is that failure to complete the formal steps to continue under the new Act will result in the dissolution of your organization. You will have three years from the date the new Act comes into force to submit articles of continuance to the federal government. Guidance on how to takes these steps can be found in the new Act, the related Regulations, in support material that will be posted on the Corporations Canada website, and in various other online articles and resources.
2. Avoid liability
A second reason not to ignore the new Act is that it includes a range of substantive changes to the law and to governance practices that must be followed once the continuance process is completed. It will not be “business as usual” for organizations. Directors and officers need to understand how this new modern governance machinery applies to them and how to comply with it. Not knowing and not complying with the new Act could amount to failure to meet the legal duty of care, and could
lead to personal liability.
3. Guidance to Competence
A third reason to become familiar with the new Act is that it includes provisions that clarify and in some cases change the legal requirements of board members and officers. There are comprehensive sections relating to the legal duties, powers, potential liabilities, and the standard of care. All board members and officers must understand these new provisions in order to do their jobs properly. Again, failure to do so could result in personal liability.
Section 148 of the new Act states that: “(1) Every director and officer of a corporation in exercising their powers and discharging their duties shall... (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.” In my view, it is a fair conclusion that a reasonably prudent person would become familiar with changes to the incorporation legislation that governs the organization for which they are a board member or officer.
4. New Rights and Powers of Members
A fourth reason to pay attention is that the new Act changes the relationship between the members of an organization and its board of directors. Briefly, it expands and clarifies the rights and remedies available to members, and includes new procedures that must be followed. One controversial example is that members of non-voting membership classes will have the right to vote in relation to some fundamental decisions, despite past bylaw provisions and practices.
The new Act also states that members of the organization have the right to apply to a court for leave to commence a derivative action – a court action against the directors and officers of the corporation in the name of and on behalf of the corporation. Members may also seek recourse to the courts in circumstances where the actions of the corporation, its directors or officers may be oppressive, unfairly prejudicial or done in unfair disregard to the interests of the members. The new Act confirms broad powers of the courts to remedy such problems. The potential to become entangled in a legal action commenced by members is extra incentive to understand the new Act and avoid problems.
5. Future benefits
The four reasons outlined above are based on fear of potential problems. But a more encouraging reason to become familiar with the new Act is that this wisdom will serve you well if you engage in the creation of new non-profit or charitable organizations down the road. Knowing how to create and govern a federally incorporated not-for-profit entity may come in handy should you decide to take on other important challenges (in addition to your current duties) as a community leader or philanthropist.
The board members and senior staff of all 19,000 organizations incorporated under Part II of the Canada Corporations Act should begin studying the new Act as soon as possible. Rather than view it as an additional chore, a more constructive approach would be to recognize it as an opportunity to revisit and improve the organization’s articles, by-laws and governance practices.