October 13, 2011
The new Canada Not-for-profit Corporations Act ("CNCA"),1 which received Royal Assent on June 23, 2009, has been proclaimed in force effective October 17, 2011. The proclamation of this legislation is the final step in a long process of modernizing Canada's federal not-for-profit legislation. It is a welcome step for nearly 19,000 active federal non-share capital corporations as they will now be able to take advantage of many of the modern governance and procedural provisions of the CNCA that are closely modeled on the provisions of the Canada Business Corporations Act.
Although there has been ample lead-time to the proclamation, the question that many federal not-for-profit corporations' directors and officers might be asking is, "What do we do now?".
transitioning to the CNCA
Although all new federal non-share capital corporations will have to be formed under the CNCA, non-share capital corporations currently existing under Part II of the Canada Corporations Act ("CCA") will have a three (3) year period from October 17, 2011 to apply for a continuance under the CNCA. If an existing Part II CCA corporation is not continued under the CNCA before October 18, 2014, Corporations Canada will, upon first giving notice in writing to the corporation and to each of its directors, dissolve that corporation.2
The CNCA contains transitional provisions that require Part II CCA corporations to apply for a certificate of continuance under section 211 of the CNCA.3 The continuance process is the ideal time for existing federal non-share capital corporations to re-examine their letters patent (including objects) and by-laws to ensure their existing provisions conform to the CNCA and to take advantage of many of the modern provisions contained in the CNCA. Non-share capital corporations in other jurisdictions might also consider whether they would be better served by changing jurisdictions to take advantage of the CNCA.
Although three (3) years initially seems like a long period of time for existing federal non-share capital corporations to continue under the CNCA, it is our experience that some corporations have a very lengthy review and consultation process for governance changes and consequently the review of the CNCA in the context of existing objects, by-laws and governance structure should be made a priority matter. There are governance options now available for the first time to federal non-share capital corporations and consequently such corporations should be appointing the appropriate committees and individuals to review the requirements and opportunities under the CNCA.
The Articles of Continuance are to be in the form provided by Corporations Canada. The following information must be included in the Articles of Continuance:4
a. the name of the corporation;
b. the province or territory of the corporation's registered office;
c. classes or groups of members the corporation is authorized to establish and, if there are two or more classes or groups, any voting rights attaching to each of those classes or groups;
d. the minimum and maximum number of directors or a fixed number of directors;
e. any restrictions on the activities that the corporation may carry on;
f. a statement of purpose of the corporation;
g. any statement regarding distribution of property remaining on liquidation after the discharge of any liabilities of the corporation; and
h. any additional provisions that the corporation may want included.
The Articles of Continuance will have to be approved by a corporation's members5 prior to such Articles being submitted to Corporations Canada. As part of the continuance process, a Part II CCA corporation will no longer have letters patent or stated objects. Instead, the Articles will include a statement of the corporation's purposes and any restrictions on the corporation's activities. In some cases, it might be advantageous for a corporation to apply for supplementary letters patent or amend its by-laws under the CCA before applying for a continuance under the CNCA. There is an extra layer of issues when the federal non-share capital corporation is a registered charity. In most cases, Canada Revenue Agency should approve the Articles of Continuance before the Articles are filed under the CNCA and this pre-approval should be worked into the timeline for filing the Articles.
At the same time that a corporation is preparing the Articles of Continuance, it should be preparing new by-laws that conform with the CNCA. The CNCA contains some mandatory provisions that are to be included in the by-laws. The CNCA also contains certain default provisions that apply if a CNCA corporation does not address the provisions in its articles or by-laws. In summary, existing by-laws will have to be amended to first, comply with the CNCA, and secondly, to take full advantage of the beneficial provisions contained in the CNCA.
by Christopher Garrah, Wayne Gray, Marni Whitaker and Lydia Wakulowsky
1 S.C. 2009, c. 23.
2 Ibid., s. 297(5). Note that, if dissolved involuntarily, the corporation may be revived with retrospective effect under the CNCA.
3 Ibid., s. 297(1).
4 Ibid., ss. 7(1) and 211(1).
5 Ibid., s. 212(3).
McMillan LLP has extensive experience in working with non-share capital corporations and is ready to assist them in transitioning to the CNCA. We have been involved during the development of the CNCA and have extensively presented and written on the CNCA. Christopher Garrah, who has advised non-share capital corporations on governance issues, recently Co-Chaired a joint Law Society of Upper Canada/Ontario Bar Association Conference entitled, "Canada and Ontario Not-For-Profit Law – How Will the Historical Changes Impact Not-For Profit Corporations". Wayne Gray has spoken and written extensively on the CNCA. Wayne was a member of a Canadian Bar Association ("CBA") joint working group that prepared a submission on the draft CNCA and testified on behalf of the CBA before the Commons Standing Committee on Industry, Science & Technology. Lydia Wakulowsky has developed comprehensive governance policy frameworks for a number of not-for-profit corporations, primarily in the health sector, and regularly provides advice on state-of-the-art governance structures and processes. Marni Whitaker has extensive experience advising charities and not-for-profit corporations. Marni acted as an advisor to Industry Canada for more than five years on the preparation of the CNCA.
a cautionary note
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
© McMillan LLP 2011