The long wait is over! The Ontario Not-for-Profit Corporations Act (ONCA), first announced in 2010 (no… this is not a typo!), will finally become law on October 19, 2021. Organizations which fall under this legislation will have three years to become fully compliant, so there is time, but this article will highlight some of the considerations you should take into account. We should mention that this is not a comprehensive list and does not constitute a legal opinion, so organizations are advised to consult with their legal representatives when considering what changes will need to be made to comply.
First things first, though: Does your organization fall under ONCA to begin with? Generally speaking, this legislation applies to provincially incorporated not-for-profits and charities that do not fall under other provincial legislation. Accordingly, if your organization was incorporated federally under the Canada Not-for-Profit Corporations Act (CNCA) or any other federal legislation, or if it’s incorporated under other provincial legislation, such as the Ontario Co-operative Corporations Act, the Farm Products Marketing Act or other provincial legislation applying to non-share corporations, you do not need to worry about ONCA.
If this ‘new’ legislation does apply to you, though, what are some of the things you need to know?
First of all, the new Ontario Business Registry (OBR) will be launched on October 19, 2021, which will allow for streamlining of processes, and the processing of many transactions and applications online, including incorporation, dissolution and many filings which apply to not-for-profits and charities.
Unlike CNCA, corporations that fall under ONCA will not be dissolved if they do not actively address the new legislation. Doing nothing will simply mean that you are deemed to comply with ONCA after the three-year implementation period. However, after October 19, 2022, any bylaws, letters patent or other governing documents and resolutions which are not in compliance with ONCA will be overridden by the legislation. This will likely create a lot of uncertainty about the legality of an organization’s governance and operations for those which take the ‘do nothing’ approach. Accordingly, we would strongly recommend that you familiarize yourself with the legislation and ensure your organization is compliant, and adopt articles of amendment and revise by-laws, as required. (Letters patent and supplementary letters patent will become a thing of the past – replaced by articles of incorporation and articles of amendment).
Classification of Not-for-Profit Corporations:
The act classifies not-for-profit corporations as either public benefit corporations (PBCs) or non-public benefit corporations (Non-PBCs). PBCs include registered charities and non-charitable corporations that receive more than $10,000 in a given year in funding from public sources, which include donations or gifts from people who are not members, directors, officers or employees of the corporation, and grants or other similar assistance from a federal, provincial or municipal government or agency.
PBCs have a higher level of public accountability, and accordingly have more stringent requirements than Non-PBCs, in some respects. For example:
- No more than one-third of directors of a PBC can be employees of the corporation or any affiliated organization.
- On dissolution, any net assets in a PBC must be distributed to an organization of a similar classification and purpose or to the government. So, a registered charity can distribute remaining funds to another registered charity with a similar purpose or the government. A non-charitable PBC must distribute its funds to another PBC or registered charity with a similar purpose, or to the government.
- For a Non-PBC, any remaining net assets on dissolution must be distributed according to the articles of incorporation, or if the articles do not prescribe what should be done, may be distributed to members. (As an aside: There are tax implications to members of this, so please consult RLB should this issue arise).
- PBCs have lower gross revenue thresholds for audits and review engagements. Specifically:
- With gross revenues of $500,000 or more, a licensed public accountant must be appointed to conduct an audit annually.
- With gross revenues of more than $100,000 and less than $500,000, a licensed public accountant must be appointed, but the members of the corporation may elect by extraordinary resolution (80% voting threshold) to have a review engagement instead of an audit.
- With gross revenues of $100,000 or less, the members of the corporation may elect by extraordinary resolution not to appoint a public accountant at all, and also by extraordinary resolution, not to have an audit or a review engagement performed.
- For Non-PBCs, the requirements are as follows:
- With gross revenues over $500,000, a licensed public accountant must be appointed, but the members may elect by extraordinary resolution to have a review engagement rather than an audit.
- With gross revenues of $500,000 or less, the members of the corporation may elect by extraordinary resolution not to appoint a public accountant at all, and also by extraordinary resolution, not to have an audit or a review engagement performed.
Note that these requirements for audits or reviews are specific to ONCA only, and various stakeholders such as grantors, major donors or lenders may require a higher level of assurance that the legislation dictates.
Membership and Member’s Meetings:
The by-laws of the corporation should outline the terms of membership in the corporation. Various classes of membership are available to not-for-profit corporations, but if an organization has more than one class of members, at least one must have voting rights. There are provisions for termination of members by the board of directors, under certain circumstances, provided this is done reasonably and in good faith.
Members have the opportunity to propose by-law amendments and agenda items for annual meetings, to call members’ meetings with support of 10% of voting members, to nominate directors with support of 5% of voting members, and to access corporate records.
There are provisions in the legislation for the timing of notice for members’ meetings (10 to 50 days before the meeting date), to fix a ‘record date’ at which the voting members are determined for the meeting (not more than 50 days before the meeting), for voting by proxy, mail, phone or electronic means, and for distribution of the financial statements (upon request, at least 21 days before the AGM, unless the governing documents specify otherwise).
ONCA requires that not-for-profit corporations have a minimum of three directors, although the corporation’s articles may prescribe a higher minimum and/or a maximum number of directors. Directors are elected by members at the annual general meeting, but do not need to be members of the corporation themselves. Ex-officio directors are permitted, if desired. The current board of directors may appoint directors to fill a vacancy between AGMs, up to one-third of the total number of board members, for a one year term or to the next AGM.
The maximum term limit for directors is four years, however there is no limit to the number of terms a director may serve. The corporation’s governing documents may require shorter term limits and maximum numbers of terms, though. Directors who are not ex-officio members may be removed by a majority vote of the members of the board.
Finally, as with various other legislation governing corporations, such as the Ontario Business Corporations Act, directors and officers have a standard of care to act honestly and in good faith with a view to the vest interests of the corporation, and to exercise the care, diligence and skill that a reasonably prudent person would exercise in similar circumstances. There is also a reasonable diligence defense for directors, eliminating director liability if they met the above standard of care, including placing good faith reliance on the advice of professionals and the corporation’s financial statements.
Again, this is not an all-encompassing list of requirements, and we would strongly recommend that all organizations which will fall under ONCA familiarize themselves with the legislation, review their articles, bylaws and other governing documents, and to consult with their legal representatives to ensure compliance. We can recommend local lawyers who work extensively with not-for-profit organizations, if you would like a referral.