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The New Ontario Not-for-Profit Corporations Act (ONCA) is in Force. What Should I Do?

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The New Ontario Not-for-Profit Corporations Act (ONCA) is in Force. What Should I Do?

By:

Posted November 25, 2021

Now that the new Ontario Not-for-Profit Corporations Act is in force, you should (1) register for the new Ontario Business Registry, (2) determine whether ONCA applies to your corporation, and if it does, (3) review and update your constating documents to comply with ONCA and its Regulations; and (4) determine whether your not-for-profit corporation is a public benefit or a non-public benefit corporation.

Register for the Ontario Business Registry

Each Ontario not-for-profit corporation should, as soon as possible, access its profile on the new Ontario Business Registry where not-for-profits can now complete over 90 transactions that were previously completed by mail. To access your Ontario Business Registry profile, you must first create a company key, which you will use to log in. While creating a profile, each corporation will also be required to create a One-key ID and a ServiceOntario account. For more information, visit the Ontario Business Registry.

Determine whether ONCA applies to your corporation

As of October 19, 2021, ONCA automatically became applicable to all Ontario corporations without share capital, save and except for “corporations sole” (except as provided in Regulation 396/21), corporations subject to the Co-operative Corporations Act (co-operative corporations or “co-ops”); insurance corporations subject to Part V of the Corporations Act (Ontario) (“OCA); corporations with social purposes (which, after October 19, 2026, will be required to continue either as a non-share capital corporation under ONCA, a co-op under the Co-operative Corporations Act, or a share capital corporation under the Business Corporations Act (Ontario)); or corporations incorporated for the construction and working of a railway, incline railway or street railway.

Not-for-profit corporations to which ONCA applies have until October 18, 2024 to revise or remove the provisions from their letters patent and by-laws that conflict with ONCA. Until October 18, 2024, Ontario not-for-profits may continue to rely on the current provisions of their letters patent and by-laws that are either (i) compliant with ONCA, or (ii) that are not compliant with ONCA but were compliant with the applicable legislation prior to ONCA taking effect (i.e. the OCA).

After October 18, 2024, any provisions that still conflict with ONCA will be deemed to be amended to comply with ONCA and its Regulations, except for certain provisions which, despite their noncompliance with ONCA, are deemed valid and in effect until amended, whether that be before, on or after October 19, 2024, provided that they were valid under the applicable legislation before ONCA came into force. This exception applies to (i) provisions respecting the number of directors; (ii) provisions providing for two or more classes or groups of members; and (iii) provisions respecting voting rights of members. A provision that requires a larger number of votes by directors or members to effect an action than is required by ONCA is also valid (unless the provision pertains to votes required to remove a director).

Review and update your constating documents

During the transition period, it is important for Ontario not-for-profit corporations to carefully review their letters patent (and supplementary letters patent, if applicable), now referred to as “articles of incorporation” (and “articles of amendment”) (“Articles”) and their by-laws and make the necessary changes to mitigate the risk of unintended consequences resulting from deemed amendments under ONCA. When reviewing and revising your by-laws, specifically, you may wish to reference Ontario’s Standard Organizational By-law, the Community Legal Education Ontario By-law Builder Guide, and/or the How to Adjust Existing By-laws Tool.

Under ONCA, your Articles must set out (i) the corporation’s name, (ii) its registered office address, (iii) its purposes, and, if the corporation has a purpose that is of a commercial nature, a statement that such purpose is intended only to advance or support one or more of the corporation’s not-for-profit purposes; and (iv) any other information required under ONCA and its Regulations. Your Articles should also contain (i) a minimum and maximum number of directors or a fixed number of directors (at least three); (ii) if there are two or more classes or groups of members, a provision providing for the number of classes, voting rights of each class, and number of votes to which each voting member is entitled; (iii) if your corporation previously passed a by-law pursuant to section 130 of the OCA respecting delegates, a provision respecting delegates; and, (iv) if your corporation is not a public benefit corporation, a provision respecting the distribution of the remaining property of your corporation on winding up or dissolution.

If your Articles provide for two or more classes or groups of members, your by-laws must set out (i) the conditions for membership in each class or group; (ii) the manner of withdrawing from a class or group; (iii) the manner of transferring membership to another class or group and conditions of transfer, if permitted; and (iv) the conditions on which membership in a class or group ends. ONCA also provides that your by-laws may set the length of a director’s term between one and four years. If your existing by-laws provide for a term of more than four years, this will need to be amended.

During the review and revision process, you may also wish to take advantage of some new optional changes to your constating documents. While optional changes under ONCA can be made at any time, you may wish to consider making all changes at once to ensure consistency across provisions and to avoid the additional costs associated with making changes over time. Among others, your constating documents may now set out provisions: (i) setting out the circumstances under and methods through which directors, members, or committees may discipline members or terminate memberships; (ii) granting a right to members who are not physically present at members’ meetings to vote either by proxy or by mail, telephonic, or electronic means; (iii) providing that certain people are automatically directors by virtue of their offices; and (iv) listing the qualifications of directors (being a member is no longer required).

Further, some provisions in your constating documents may now be redundant, such as those granting your corporation the power to own, sell or buy property. This is because under ONCA, corporations automatically have the powers of a natural person. Although such rights are generally welcomed, your corporation may find it necessary to restrict certain powers, such as the directors’ ability to borrow money without the members’ authorization.

Determine whether your not-for-profit corporation is a public benefit or non-public benefit corporation

Under ONCA, a not-for-profit corporation is considered, for the following financial year, to be either (i) a public benefit corporation; or (ii) a non-public benefit corporation. It is important to determine which category your corporation falls into and how ONCA’s prescriptions subject your corporation to either less or more onerous requirements, which may save your corporation time and money or introduce additional expenses.

Public benefit corporations are either (i) charitable corporations; or (ii) non-charitable corporations that have received more than $10,000 in the current financial year in the form of donations or gifts from persons who are not members, directors, officers or employees of the corporation or in grants or similar financial assistance from the federal or provincial government or an agency of the same.

Because public benefit corporations receive funding from public sources, they are subject to higher regulatory standards to encourage greater transparency in their operations. For example, public benefit corporations are subject to more stringent rules surrounding audit and review engagement, board composition, winding up, and distribution to members. Directors of charitable public benefit corporations are also subject to different rules in areas such as indemnification, liability insurance, remuneration, conflicts of interest, resignations, and purposes of the corporation.

Moving forward

To mitigate the risk of unintended consequences and uncertainty resulting from deemed amendments under ONCA, before October 19, 2024, determine whether ONCA applies to your corporation, and if it does, review and update your constating documents to reflect both the new legislation and the current needs of your corporation. In addition, determine whether your corporation is a public benefit corporation or non-public benefit corporation and gain an understanding of how it is treated under ONCA based on its status. For more information on transitioning under and becoming compliant with ONCA, refer to Ontario’s Guide to the Not-for-Profit Corporations Act, 2010 and transition considerations page.

This blog post was written by Jade Renaud, a member of the Business Law team. Jade can be reached at 613-369-0373 or at jade.renaud@mannlawyers.com.

 

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