Canada Not‐for‐Profit Corporations Act 5 Steps to Transition

Presented by: Margot Patterson, Counsel Dentons Canada LLP

Overview

•  The NFP Act – what it is, what it does

•  Transition Time-Frame

•  Your Association’s:

• By-laws • Directors’ Duties • Members’ Enhanced Rights • Corporate Obligations • Financial Accounting and Disclosure

•  What are fundamental changes?

•  5 Steps to Transition under the NFP Act

•  Corporate Housekeeping or Clean Sweep?

The NFP Act – what it is, what it does

•  Came into force October 17, 2011

•  Replaces Part II of the Canada Corporations Act (1917)

•  New framework for governance and incorporation of associations and other federal NFPs

•  A comprehensive “rule book”: •  replaces much of the detail that was previously required in by‐laws •  Gives associations latitude to accept the default requirements in the

legislation, OR set rules to fit its own circumstances and practices.

Transition Time-Frame

•  Associations currently incorporated under Part II of the CCA have three years (from October 2011) to transition to the NFP Act to avoid dissolution

Your By-laws

•  Industry Canada will no longer review and approve by‐laws

•  Corporations must, however, file by‐laws and amendments with Industry Canada within 12 months of member approval

•  Corporations have latitude to adopt by‐laws to suit them

•  Your choice: •  simply review and amend by‐laws to ensure compliance, or •  create new minimal by‐laws and rely primarily on the NFP Act as the legal

“rule book”

Your Directors’ Duties

•  Directors are subject to the same duty and standard of care as directors of business corporations:

an explicit duty to act honestly and in good faith,

in the best interests of the corporation,

and to exercise the care, diligence and skill of

a reasonably prudent person in similar circumstances

Your Members’ Enhanced Rights

•  The right of voting members to submit notice of a proposal to the corporation of a matter to be raised at a members’ meeting

•  The right of non‐voting members to vote separately from voting members on matters that impact their rights

•  The right to requisition a meeting

•  The right to access corporate records to monitor the board’s performance

•  Remedies to enforce these rights: •  court‐ordered investigations (to review alleged wrongdoing) •  compliance orders (e.g. to share information with members) •  “business‐style” derivative action and oppression remedies

Region-specific footer note Document reference #

Your Corporate Obligations

1.  Annual meeting

•  Annual members’ meetings to: •  elect directors •  appoint a corporate accountant •  review financial statements

•  New options for notice of members’ meetings, absentee voting

Your Corporate Obligations

2.  Reporting to Industry Canada •  New, simpler reporting: simply file copies of by‐laws, no review/

approval process

•  Key ongoing filing requirements: •  annual return •  changes in directors •  copies of by‐laws/amendments •  articles (and amendments) •  change of registered office address •  financial statements and accountant’s report (soliciting corporations)

Your Financial Accounting & Disclosure

Soliciting or Non‐Soliciting Corporation?

•  “Soliciting corporation” •  receives more than $10,000 in a financial year, in the form of: •  third party donations, government grants, financial assistance, or donations

from another soliciting corporation

•  “Soliciting corporation” status lasts for three years.

•  “Non‐soliciting corporation” ≠ soliciting corporation.

Your Financial Accounting & Disclosure

Your review and reporting requirements

•  Soliciting corporations are subject to different rules: •  A non‐soliciting corporation is permitted to have only one director, a soliciting

corporation must have a minimum of three, two of whom must not be officers or employees of the corporation.

•  Soliciting corporations are also subject to more stringent financial review and reporting

•  Level of corporate gross revenues also relevant to review and reporting

Your Financial Accounting & Disclosure

Corporation Type / Revenues

Soliciting corporation < $50,000

Non‐soliciting corporation < $1M

Soliciting corporation between $50,000 and $250,000

Soliciting corporation > $250,000

Non‐soliciting corporation > $1M

Defaults, Options for Financial Review Members may unanimously vote not to appoint a public accountant; can have its financial statements reviewed or audited.

 Must have a financial review by a public accountant; can have its financial statements reviewed or audited.

 Must have a financial review by a public accountant; must have its financial statements audited.

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What are Fundamental Changes?

Specific rules for the directors and members to: •  approve “fundamental changes”, including:

•  changing the name of the corporation •  amending articles and by‐laws •  altering the corporation’s activities •  changing its mission statement or “statement of purpose” •  changing conditions of membership, or rights of any class/group of members •  changing means of giving notice of a members’ meeting to voting members

•  A director, or a member who is entitled to vote at an annual members’ meeting, may make a proposal for a fundamental change

5 Steps to Transition under the NFP Act

1.  Review the current Letters Patent and Bylaws 2.  Prepare Articles of Continuance (transition) 3.  Revise the by‐laws 4.  Obtain member approval 5.  File with Industry Canada

•  the Articles of Continuance (transition) •  Initial Registered Office Address •  First Board of Directors •  amended by‐laws

Corporate Housekeeping or Clean Sweep?

•  New regime: •  affects hundreds of associations incorporated under a 90 year old Act •  gives you the opportunity to revisit your governance structure, make

important choices

•  NFP Act is flexible enough to let you do: •  some “corporate housekeeping” OR •  a “clean sweep”

•  Three-year transition clock started on October 17, 2011

•  Seek out information, views, advice on how to transition your association

The preceding presentation contains examples of the kinds of issues

companies dealing with Canada Not‐for‐Profit Corporations Act could face. If you are faced with one of these issues,

please retain professional assistance as each situation is unique.

Questions?

Margot  E.  Pa+erson    margot.pa+erson@dentons.com  h+p://ca.linkedin.com/in/margotpa+erson    +1  613  783  9693