The Ontario Not-for-Profit Corporations Act is in force: practical steps for your not-for-profit corporation
By Matthew Literovich and Mariam Momodu
1. The Ontario Not-for-Profit Corporations Act
“Better late than never” may be the most appropriate saying to describe the Not-for-Profit Corporations Act (Ontario) (the ONCA or the Act), proclaimed on October 19, 2021.[1] It has taken over 11 years for Bill 65, An Act to revise the law in respect of not-for-profit corporations, which was introduced by Parliament on May 12, 2010, to finally crystalize into the ONCA.
The ONCA applies to all Ontario not-for-profit corporations and charities governed by Part III of the Corporations Act (Ontario) (the OCA), which governs corporations without share capital. The ONCA also applies to not-for-profit corporations incorporated under other Ontario laws and statutes. In addition, the ONCA will automatically apply to all new not-for-profit corporations seeking incorporation under the Act. Not-for-profit corporations incorporated under the Canada Not-for-profit Corporations Act will not be caught by the operation of ONCA.
Designed to establish a modern regulatory regime for not-for-profit corporations that would be responsive to their needs, the ONCA includes provisions to organize record keeping and facilitate good governance, while increasing efficiencies in accounting and decision making abilities. We chronicled the first 10 years of the ONCA’s journey in a separate insight here, from its inception in 2010, to the amendments over the past decade, as well as the expected benefits, including enhanced corporate governance, transparency and accountability, a simpler incorporation process and increased director and officer protection.
Since our last update, and over the past year, some noteworthy developments have occurred in relation to the ONCA, one of which is the announcement of the launch of the Ontario Business Registry (the OBR), also on October 19, 2021. [2] Delays in proclaiming the ONCA were partly attributed to the need for ONCA to be launched when the new OBR would be functional. The OBR is expected to offer simple and efficient solutions to businesses and not-for-profit corporations across the province as they navigate incorporating, conducting searches and filing annual returns.[3]
In addition, four regulations were promulgated to support the launch of the OBR and ONCA[4]:
- Ontario Regulation 393/21 made pursuant to the OCA – pertaining to letters patents;
- Ontario Regulation 394/21 made pursuant to the ONCA – pertaining to filings and instructions on authorized corporate names;
- Ontario Regulation Reg. 395/21 made pursuant to the ONCA – a general regulation that addresses a variety of issues including restriction on purposes of the corporation, forms of proxy, registers and notices; and
- Ontario Regulation 396/21 pursuant to the ONCA – pertaining to corporations sole – (the Regulations).
In order to ensure their operations are in compliance with the law, not-for-profit corporations need to be aware of several practical implications of the ONCA. In this insight, we highlight some key changes introduced by the ONCA that need to be considered expeditiously.
2. The ONCA is in force, now what?
While there is a three year transition period to allow not-for-profit corporations adequate time to bring their operations in compliance with the ONCA, this compliance procedure may take some time and it is best to be aware of some of the necessary changes. Some immediate steps for not-for-profit corporations include the following:
2.1 Review letters patent
ONCA replaces the term “letters patent” with “articles of incorporation” or “articles”. Not-for-profit corporations need to review their letters patents or any supplementary letters patents to ensure compliance with the changes brought about by ONCA. ONCA provides that articles of incorporation must set out the name of the corporation, its purposes and any other information required, and if any of the purposes of a corporation are of a commercial nature, the articles must state that the commercial purpose is intended only to advance or support one or more of the non-profit purposes of the corporation.[5] In addition, ONCA requires a not-for-profit corporation with two or more classes or groups of members to set this out in the articles (instead of in the by-laws) while the by-laws must set out the conditions of membership.[6] ONCA does not require directors to be members of the corporation, although they can be members. To the extent that current letters patent require directors to be members, this may be amended to allow a wider pool of people to become directors.
The articles should also contain a provision relation to the number of directors, a provision respecting voting rights of members and a provision respecting distribution of property (for non-public benefit corporations) upon dissolution.[7] To the extent that the not-for-profit corporation’s articles are inconsistent with ONCA or the Regulations, the provisions of ONCA will prevail.[8] Therefore, it is crucial to confirm the provisions of the articles and bring the content in compliance with the ONCA.
Furthermore, provisions in some letters of patent are likely to become redundant, for instance, provisions that give not-for-profit corporations the power to own, sell or buy property. This is because not-for-profit corporations under ONCA automatically have the powers of a natural person and do not need these additional powers conferred.[9]
2.2 Identify whether the corporation will be a public benefit corporation
Under the ONCA, there are differences in the treatment of public benefit corporations. A public benefit corporation means:
(a) a charitable corporation; or
(b) a non-charitable corporation that receives more than CA$10,000 or other prescribed amount;
(i) in the form of donations or gifts from persons who are not members, directors, officers or employees of the corporation, or
(ii) in the form of grants or similar financial assistance from the federal government, a provincial or municipal government, or an agency of any such government.[10]
The implications of being a public benefit corporation are multifaceted and reflect in rules that apply to directors, audits and dissolution of the organization. It is therefore important for not-for-profit corporations to identify their categorization under the ONCA. For instance, for a public benefit corporation, not more than one-third of the directors can be employees of the corporation or any of its affiliates.[11]
2.3 Review audit requirements
It is crucial to understand the prescriptions of the ONCA in relation to appointing auditors and conducting audit reviews. Depending on the annual gross revenue of the corporation and the classification of the corporation, less onerous or more stringent audit requirements may apply, which may either save the corporation some time and money, or introduce additional expenses.
A public benefit corporation with annual revenue of CA$100,000 or less may decide not to appoint an auditor and may dispense with both an audit and a review engagement by extraordinary resolution.[12] Where the public benefit corporation has an annual revenue of CA$100,000 but less than CA$500,000, it may dispense with an auditor and conduct a review engagement instead of an audit.[13] A public benefit corporation with an annual revenue of CA$500,000 or more must appoint an auditor or a person to conduct a review engagement of the corporation.[14]
Non-public benefit corporations, with CA$500,000 or less in annual revenue, may dispense with both an audit and a review engagement by extraordinary resolution,[15] and where they generate more than CA$500,000 in annual revenue, they may conduct a review engagement instead of an audit.[16]
2.4 Review by-laws
By-laws inconsistent with the ONCA will be deemed amended after the three year transition period is over. To ensure the not-for-profit corporation’s by-laws are customized for its purposes, not-for-profit corporations should review their by-laws as some provisions may need to be updated to reflect requirements in the ONCA. For instance, the ONCA provides that by-laws should specify conditions for membership of a corporation,[17] and where the articles of a corporation provides for more than one class of membership, the by-laws must provide details on how to join, transfer or withdraw from each class of membership.[18] Corporations should review their by-laws to ensure they adequately capture the reality of their membership.
The articles or the by-laws should also provide the circumstances and methods through which disciplinary action is to be carried out by the directors, the members or any committee of directors or members with disciplinary powers.[19] Further reviews of the by-laws should include necessary amendments to enable not-for-profit corporations to provide other means of voting such as by mail, telephone or electronic methods, in addition to or in place of voting by proxies.[20]
2.5 Review borrowing powers
Under ONCA, corporations have the capacity, rights, powers and privileges of a natural person, including the capacity to borrow money.[21] While having this power is likely to be a welcomed development, it is important for corporations to consider their objectives and whether it is necessary to place any restrictions in the articles or by-laws on the directors’ ability to borrow money without clear member authorization.
3. The future for not-for-profit corporations
While there is a three year transition period for not-for-profit corporations to comply with the ONCA, not-for-profit corporations must examine their practices against the Act and explore additional obligations imposed or benefits conferred. The ONCA also presents a good opportunity for new not-for-profit corporations to be incorporated, as they avoid the inefficiencies associated with the manual registration system, and can also be incorporated as-of-right, not subject to the discretion of the minister.[22] Furthermore, for new not-for-profit corporations, ONCA has prescribed standard ONCA compliant organizational by-laws which will apply by default, except if the not-for-profit organization files its own by-laws.
Not-for-profit corporations should gather relevant documentation and are advised to seek legal advice on whether the ONCA applies to their activities and how to bring their activities into compliance. By October 19, 2024, any by-laws and articles inconsistent with ONCA will be deemed amended, which may lead to undesirable situations and introduce uncertainty not-for-profit corporations may prefer to avoid.
The ONCA may be coming into force several years later than desired; however, it provides an opportunity for Ontario not-for-profit corporations to be governed by legislation more attuned to their needs.
Are you concerned about the effects of the ONCA on your not-for-profit corporation? While the three year transition period is a helpful buffer, complying with ONCA requires bespoke consideration for each not-for-profit corporation. It is advisable to take action as soon as possible. Dentons has an experienced team that can help you transition into the current legislative regime. Contact Matthew Literovich of Dentons’ Corporate group for legal support.
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