By Theresa L.M. Man, LL.B. and Terrance S. Carter, LL.B.
With the Ontario Not-for-Profit Corporations Act, 2010 (ONCA) expected to be proclaimed on July 1, 2013, not-for-profit corporations incorporated under Part III of the Ontario Corporations Act (OCA) should begin familiarizing themselves with how the ONCA will impact their governance and planning their transition under the ONCA.
By way of background, the OCA has not been substantively amended since 1953. The new ONCA was introduced on May 12, 2010 and received Royal Assent on Oct. 25, 2010. In December 2012, the Ministry of Consumer Services released a transition checklist and a list of frequently asked questions. Additional tools will be available in the future, including a plain language guide explaining the ONCA’s most significant sections and draft default bylaws.
Transitioning Under the ONCA
Transitioning under the ONCA refers to the process by which a Part III OCA corporation amends its constating documents to conform to the requirements in the ONCA.
Upon being proclaimed into force, the ONCA will automatically apply to all non-share capital corporations incorporated under Part III of the OCA. As such, OCA corporations are not required to take action in order to come under the ONCA. However, if there are any provisions in a corporation’s letters patent, supplementary letters patent, bylaws or special resolution that are inconsistent with the ONCA, these governing documents will be deemed, at the end of three years after proclamation, to be amended to comply with the ONCA.
The problem with this approach is that it will become difficult to determine what provisions are deemed to be amended and in what way. In order to avoid such uncertainty, the ONCA permits Part III corporations to “transition” into the ONCA during the three-year period by amending any provision in its letters patent, supplementary letters patent, bylaws or special resolution that are inconsistent with the ONCA. This approach is advisable.
Overview of the Key Elements of the ONCA
The ONCA introduces many new rules that affect the governance of not-for-profit corporations. While a detailed review of these new rules is outside the scope of this article, some examples are worth noting. For example, incorporation will now be “as of right” and not at the discretion of the Ministry, which is expected to shorten the incorporation process.
Further, the ONCA introduces the concept of public benefit corporations (PBCs), which consist of all charitable corporations and any non-charitable corporation that receives more than $10,000 in a financial year from specific public sources. PBCs will generally be subject to tighter regulations and higher standards of transparency because they receive public funds.
As well, under the ONCA, directors and officers will be held to an objective standard in meeting their duties and will have a reasonable due diligence defence. Meanwhile, members will now have a number of new remedies, including compliance or restraining orders and rectification orders.
Preliminary Steps and Considerations for Transition
In preparation for a smooth transition into the ONCA, a corporation should begin by collecting and reviewing all of its governing documents. The next step is for the corporation to gain a clear understanding of the rules contained in the ONCA so as to determine how these new rules will impact the governance of the corporation and what provisions to include in the articles of amendment and new bylaws. The corporation will then need to review and determine how the new rules will impact the governance of the corporation. Examples of questions to consider include: whether the current bylaws or the desired governance structure and process are inconsistent with ONCA requirements. If so, the corporation should consider how its governance structure and process would need to be revised in order to comply with the new ONCA requirements.
A corporation should also decide when to start the bylaw review process. Key considerations in determining when to begin the process include;
• the length of time and complexity of the process required in revising the bylaws;
• whether the bylaws will require substantive changes;
• the size of membership and time required to consult members;
• the board structure;
• whether changes to membership structure are required; and
• whether changes of corporate objects are required.
As a result of the sweeping changes the ONCA will bring about, it will be important for boards, executives, staff and legal counsel of corporations in Ontario to become familiar with the provisions of the ONCA and to begin planning to transition under the ONCA once it is proclaimed in force.