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Canada Not-for-Profit Corporations Act Declared in Force

On 17 October 2011 the Federal Government declared the new Canada Not For Profit Corporations Act in force, beginning the three year transition period set out in the Act.

The new Act substantially tightens financial reporting requirements, and all non-profit or charitable clients are urged to discuss these requirements with their auditor as soon as possible.

The Act also provides a much more detailed procedural ‘rulebook’ that is intended to displace much of the substance of corporate by-laws, and indeed the current requirement for ministerial approval of by-laws is replaced with the obligation to notify the Minister of changes within 12 months. Accordingly, organizations may simply keep their current by-laws or review and replace them with either more specific by-laws for the organization or leaner by-laws that will rely on the Act’s rules.

Rights of Members have also been enhanced and specified, and now closely resemble shareholder rights for corporations. This includes minority voting rights (e.g. for separate classes of members to vote separately on matters affecting the class) and the right to bring proposals to and demand transparency from the Directors. Directors now have an explicit fiduciary duty to act honestly and in good faith in the best interests of the corporation with the care and skill of a reasonably competent person in similar circumstances; this requirement again mimics the duties of for-profit directors.

In respect of financial reporting, the Act creates a distinction between Soliciting and non-soliciting corporations. A soliciting corporation is one that has brought in more than $10,000.00 in third party revenues/donations in a calendar year; once acquired the status lasts three years. Within the category of soliciting corporations, further reporting requirements are added for those soliciting more than $50,000 annually, and again for those bringing in more than $250,000 annually.

What should we do now?

The transitional period (three years to 17 October 2014) provides a good opportunity for some corporate housekeeping, and in particular the opportunity to revisit old policies and standard-form by-laws drafted to obtain quick approval, rather than with the needs of the organization in mind.

  1. Consult with your auditor and counsel to determine how the new Act will apply to your organization.
  2. Review existing letters patent and by-laws in light of the new rules and determine what amendments are appropriate.
  3. Prepare Articles of Continuance (transition) using Form 4031 as provided by the Act.
  4. Obtain approval of the transition date and the amended by-laws (if applicable) from Members at a Members’ meeting or AGM.
  5. File the changes and Articles of Continuance with Industry Canada.
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