Almost 11 years after receiving royal assent, Ontario’s Not-for-Profit Corporations Act, 2010 (ONCA) finally came into force on October 19, 2021. To put this into some context, NASA built and launched two rovers to Mars during that time. The ONCA has replaced Ontario’s Corporations Act (OCA) and generally applies automatically to all new and existing not-for-profit corporations. Existing Ontario not-for-profit corporations (NPC) will have until October 18, 2024, to comply with the ONCA.
Set out below are steps NPCs need to take to transition from the OCA to the ONCA:
Step 1: Gather your important documents
The NPC will need to review its governing documents to determine if they will need to be changed to comply with the ONCA. These include the articles of incorporation (formally known as letters patent), by-laws, and any amendments made to the articles and by-laws. Consider whether they actually reflect the current governance process.
Step 2: Understand the law and update the articles of incorporation & by-laws
There are a number of differences between the OCA and ONCA. Below are the key changes NPCs should be considering when completing their review of the articles and by-laws:
Under the ONCA, NPCs are now allowed to have an ancillary commercial purpose. The articles must be amended to state the commercial purpose and that it is meant only to support the NPC’s purpose.
The ONCA requires a minimum of three directors for NPCs. However, articles can be amended to allow for a range of directors or a fixed number. Directors can have a maximum four-year term, but there is no limit on the maximum number of terms.
Directors no longer have the ability to vote by proxy at board meetings. If a director is not present at a meeting, they will be deemed to have consented to a resolution or an action that was taken unless they provide notice of their dissent within seven days of becoming aware of it.
Public Benefit Corporations
The ONCA has introduced a new category of NPCs called public benefit corporations. An NPC is considered a public benefit corporation if it is a charity or if it has received more than $10,000 in the last financial year from public sources. Public sources include financial contributions from the government or a government agency and gifts or donations from people that are not members, directors, officers, or employees of the NPC. Public benefit corporations have special rules about when they review and report their finances and what can be done with their assets should they choose to dissolve.
If an NPC meets the criteria of a public benefit corporation, then no more than 1/3 of its directors can be employees of the NPC or its affiliates.
The ONCA has introduced some flexibility to the financial review obligations for NPCs. A “review engagement” has been introduced. A review engagement is still performed by an accountant, but is less extensive than an audit and, as a result, is generally less expensive. The ONCA sets out rules for the type of financial review that is to be conducted by a NPC, based on Gross Annual Revenue (GAV):
Non-Public Benefit Corporation
- If GAV is $500,000 or less, waive both review engagement and audit*
- If GAV is more than $500,000, review engagement instead of an audit*
Public Benefit Corporation:
- If GAV is $100,000 or less, waive both review engagement and audit*
- If GAV is more than $100,000 but less than $500,000, review engagement instead of an audit*
- If GAV is $500,000 or more, audit
*Requires an extraordinary resolution, which is approved by at least 80% of the member votes cast
Members have been granted considerable rights under ONCA. Provide specific criteria are met, they can requisition a members’ meeting, submit proposals to amend by-laws or require a matter to be discussed at annual meetings, submit proposals to nominate directors, access corporate records, such as the membership list, and have broad remedy powers (e.g., dissent and appraisal remedy, derivative action, compliance and restraining orders, court-ordered wind-up, and liquidation). NPCs will need to consider whether there should be more than one class of members, i.e., a voting and a non-voting class.
Step 3: Update and file changes to your articles
In this final step, the NPC will update and file changes to your articles/letters patent and make the transition to the ONCA official. There are some changes that can only be made to the articles of incorporation, such as the NPC’s purpose, the number of directors, membership classes and voting rights, and dissolution clauses. Articles of Amendment will need to be filed in order to bring the changes into effect.
The ONCA represents an important step in modernizing Ontario’s not-for-profit corporation law. NPCs should review their governance and membership structure with a view to ensuring compliance with the ONCA, but also determine how the corporation’s governance and management structure may be improved or adjusted given the changes under the ONCA.
NPCs should start the review of their articles and by-laws soon to ensure a smooth transition to the ONCA – we are already a year into the three-year transition window, and changes to articles and by-laws need to be approved by the members.
Alysia M. Christiaen is available to assist NPCs in their Ontario Not-for-Profit Corporations Act transition.