The Ontario government has introduced legislation to amend the Ontario Corporations Act (“OCA”). The OCA is the statute that currently governs provincially incorporated not for profit corporations.
Back in 2010, Ontario adopted a new law for not for profits called the Not For-Profit Corporations Act, 2010 (“ONCA”). The ONCA modernizes and updates the law for not-for profits. However, it has still not come into force and will not do so for several years. Before the ONCA can come into force the Ontario government needs to upgrade its technology so that it can work with the ONCA. In the meantime, Ontario not for-profits are still governed by the OCA.
The proposed amendments modernize the OCA to bring it up to date with other corporate laws in Canada and to enable Ontario not-for profits to benefit from some of the provisions that are in the ONCA, but are not yet applicable. Eventually, the ONCA will come into force and all Ontario not for-profits will be governed by it and will need to comply with the ONCA.
Electronic Communications
The proposed changes amend the OCA to specifically allow electronic notice of meetings of members and for the actual meeting of members to be conducted electronically. Although some Ontario not for-profits have been holding electronic meetings, this is currently not specifically authorized by the OCA. An electronic meeting can be held by telephone, computer or other electronic means. If an Ontario not for-profit does not want to allow electronic notices or electronic meetings it will need to amend its by-laws to prohibit electronic notices and meetings.
Other proposed amendments to the OCA will allow the receipt, filing, keeping and searching of documents in electronic format.
Directors will not have to be Members
The proposed amendments will allow a not-for-profit to changes its by-laws so that directors do not have to be members of the not for-profit. An Ontario not for-profit will only need to change its by-laws if it wants to add this flexibility to its director requirements.
Powers of a Natural Person
Currently, Ontario not-for profits only have the powers and capacity specifically listed in their letters patent and the OCA. This can limit some of their funding and financing activities. The proposed amendments will give Ontario not-for profits the rights, powers and privileges of a natural person. An Ontario not-for profit will no longer need to pass a by-law to confer a specific power on its board, such as the power to borrow money.
Pre-Incorporation Contracts
Ontario not-for profits will be allowed to adopt contracts entered into prior to their incorporation. This will bring the OCA into line with other corporate statutes in Canada.
Standard of Care for Directors and Officers
The OCA does not contain a standard of care for the duties owed by a not for-profit’s directors and officers. This means that the default common law subjective standard applies. Under the common law, a director is expected to exercise the degree of skill and care that may reasonably be expected of a person with similar knowledge and experience. This imposes a higher duty of care on directors with particular skills or experience, such as lawyers, accountants, engineers or investment advisors, which discourages such individuals from volunteering. The proposed amendments will impose and objective standard care to act honestly and in good faith with a view to the best interests of the corporation and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
Removal of Directors
The OCA currently allows a not for-profit to have a provision in its by-laws or letters patent that gives members the right to remove directors by a resolution approved by at least 2/3 of the votes cast a members’ meeting. If the letter patent or by-laws don’t include this right, then members cannot remove a director. The proposed amendments will allow directors to be removed by a majority vote at a members’ meeting. This proposed change will not apply to ex-officio directors, who are not elected, but are directors automatically by virtue of holding another position.
Audit Exemption
Ontario not for-profits are currently required to have their annual financial statements audited, unless they have annual income of less than $100,000 and all of the members consent in writing to an exemption from the audit requirements. The consent requirement will be changed to 80% of the votes cast at a members’ meeting.
Sale of All or Substantially All Assets
The proposed amendments will allow an Ontario not for-profit to sell all or substantially all of its assets if it has been authorized by a resolution of the board of directors and a resolution approved by 2/3 of the votes at a members’ meeting.
This blog post was written by Paul Franco, a member of the Business Law team. He can be reached at 613-369-0363 or at paul.franco@mannlawyers.com.
