Proposed Legislation Will Affect 19,000 Federal Non-Profit Corporations

On June 13, 2008, a bill was tabled in the House of Commons which will dramatically affect some 19,000 federally-incorporated not-for-profit corporations. If enacted into law, the bill (Bill C-62) will significantly modernize Canada’s not-for-profit legislation for the first time in almost a century.

Some key elements of the proposed legislation are as follows:

1. The proposed legislation will be known as the Canada Not-for-profit Corporations Act (the “CNCA”). It will repeal the Canada Corporations Act (the law currently governing federally-incorporated not-for-profit corporations) in its entirety. Corporations currently incorporated under the Canada Corporations Act will have three (3) years to apply for corporate status under the CNCA by filing articles of continuance. Failing to do so could result in the corporation being dissolved.
2.  The current method of creating a corporation by filing Letters Patent will be replaced by a new method of creating the corporation by filing Articles of Incorporation. The current requirement for ministerial approval of the corporation’s by-laws will be eliminated.
3.  The proposed legislation will allow for incorporation of a federal not-for-profit corporation as a numbered company.
4. Unlike the current law, federal not-for-profit corporations will not be required to have a corporate seal.
5. Not-for-profit corporations will be categorized as either a “soliciting corporation” (i.e. a corporation that solicits public donations or receives government funding) or as a “non-soliciting corporation”. High-revenue soliciting corporations will be required to be audited. Medium-revenue soliciting corporations may resolve, with the consent of two-thirds of their members, not to undertake an audit, but to undergo a review engagement instead (in which the scope of review is less than that of an audit). Low-revenue soliciting corporations are required to undergo a review engagement but may resolve, with the unanimous consent of all their members, not to undertake a review engagement.
6. The proposed legislation will require that all federal not-for-profit corporations must make their financial statements available to their members, directors and officers.
7. The current law is deficient in that it fails to set out a standard of care that directors of a federal not-for-profit corporation must meet. The proposed legislation seeks to correct this by setting out a standard of care for directors: the directors must act honestly, in good faith and in the best interests of the corporation. The proposed legislation also creates a “due diligence” defence in favour of directors and officers of the corporation against potential liabilities.

If you are a director, officer, member or employee of a federal not-for-profit corporation, you should keep abreast of the status of this proposed legislation and be prepared if the proposed legislation becomes law, either in the form as tabled on June 13, 2008, or with changes as may be made as the proposed legislation proceeds through Parliament.

Dirk Bouwer is a member of the Corporate Department of Perley-Robertson, Hill & McDougall LLP / s.r.l. Dirk can be reached at (613) 566-2850 or [email protected] to answer any questions you may have regarding the proposed Canada Not-for-profit Corporations Act or any of your other corporate legal needs.

This article was orginally published in the July 9, 2008 edition of the Ottawa Business Journal.