Ontario’s Not-for-Profit Corporations Act, 2010 Now in Force

On October 19, 2021, the Ontario Not-for-Profit Corporations Act, 2010 (the “Act”) came into force.  There is a three-year transition period from October 19, 2021 for not-for-profit corporations to make required changes to their governing documents.

Application

The Act does not apply to the following:

• Insurance corporations under Part V of the Corporations Act;
• Corporations without share capital that fall under the Co-operative Corporations Act;
• When a statute clearly says otherwise; and
• Companies with social purposes, like share-capital social clubs, such as some golf, tennis or country clubs. These companies will still be governed by the Corporations Act if incorporated or continued under that Act.  However, within a five-year transition period, they must continue either as a:
  • Non-share capital corporation under the Act;
  • Co-operative corporation under the Co-operative Corporations Act; or
  • Share capital corporation under the Business Corporations Act.

The Act applies to not-for-profit corporations incorporated under special or private acts, though some exceptions apply.

New Features

There are a number of new features in the Act, including those briefly summarized below.

• The incorporation process for new not-for-profits is more efficient. Charitable corporation incorporation no longer requires the approval of the Office of the Public Guardian and Trustee.
• There are clearer rules for governing the corporation and increasing accountability.
  • Members have actions available to them if they believe directors are not acting in the best interests of the corporation.
  • Members are given greater access to financial records.
  • Directors and officers are required to disclose a conflict of interest in certain circumstances.
  • Directors are subject to a statutory duty of care requiring them to act honestly and in good faith with a view to the best interests of the corporation, and to exercise reasonable care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances. Directors have a “reasonable diligence defence” available to protect them from liability in certain circumstances where they exercised the care, diligence and skill that a reasonably prudent person would have exercised in comparable circumstances, including reliance on certain:

a) Financial statements;

b) Interim or other financial reports;

c) Reports or advice of an officer or employee of the corporation; or

d) Reports of a lawyer, accountant, engineer, appraiser, or other person whose profession lends credibility to a statement made by them.

• There is a distinction between public benefit corporations and other not-for-profit corporations. “Public benefit corporations” are defined as:
  • a charitable corporation; or
  • a non-charitable corporation that receives more than $10,000 or other prescribed amount in a financial year:

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 or a provincial or municipal government or an agency of any such government.

• Not-for-profit corporations can earn a “profit” through commercial activities, as long as the “profit” is reinvested to support the corporation’s not-for-profit purposes. If any of the corporation’s purposes 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.  However, not-for-profit corporations may be subject to restrictions on their activities pursuant to other legislation, like the Income Tax Act.
• By-laws can permit for voting by mail, telephone, or electronic means in addition to or instead of voting by proxy.
• A member of a corporation may appoint a proxy holder if permitted by the articles or by-laws of the corporation.
• A corporation is required to have at least one class of voting members. Every member has one vote at a member’s meeting unless otherwise specified in the organization’s articles.  A corporation that has two or more classes or groups of members must set this out in their articles instead of their by-laws.  The by-laws must set out the conditions for membership.
• Under certain circumstances, corporations do not always have to include a member’s proposal in meeting notices.
• The new “review engagement” process for reviewing the corporation’s financial records is available to certain corporations based on their revenue per financial year and whether or not it is a public benefit corporation. The review engagement process is less extensive than an audit and therefore generally less expensive.  In some cases, neither an audit nor a review engagement process will be required.

In Our View

Not-for-profit corporations should familiarize themselves with the new legislation and their obligations under it.  They should also review and update their documents before the expiry of the three-year transition period.

The government has prepared a number of resources to provide corporations with information and guidance in relation to the new legislation, including:

• A plain-language Guide to the Not-for-Profit Corporations Act, 2010;
• Guidance on transition considerations; and
• The Standard Organizational By-law that will apply if corporations do not pass an organizational by-law within 60 days after the date of incorporation.

For more information, please contact Raquel Chisholm at 613-940-2755 or Céline Delorme at 613-940-2763.