Not-for-profits – not for play: Bill C-4 tightens rules governing not-for-profit corporations 

publication 

December 2009 - (Business in Vancouver)

Business in Vancouver
As a business executive, you have likely been asked to serve on the board of a not-for-profit organization and, like most in that situation, you have probably been appalled at the lack of control, accountability and transparency in the way many of these organizations are managed. 

Previous attempts at reform have failed, but Parliament finally enacted the Canada Not-for-Profit Corporations (NPC) Act to make a number of important changes in the law governing federally incorporated not-for-profit corporations. The result will be good news for directors used to working in a more structured corporate environment but bad news for those used to operating independently in a more "flexible" environment. 

The new legislation is scheduled to come into effecy in the next 18 to 24 months. Directors of federally incorporated NPCs should familiarize themselves with the extensive changes brought about by the new regime in order to prepare the corporation for compliance with, and operation under, the new legislation. Federal NPCs will have three years to continue into the NPC Act. Those that do not take that step will be dissolved. 

The NPC Act will ultimately repeal and replace the Canada Corporations Act with a system of modern corporate governance for NPCs comparable to that provided by the Canada Business Corporations Act, which regulates federally incorporated business corporations. The new legislation will enable NPCs to take advantage of the protections and advantages offered by incorporation, such as predictability and accountability, and will eliminate unnecessary regulation of NPCs. The NPC Act will clarify corporate powers, directors' liabilities and responsibilities, articulate members' rights vis-a-vis the NPC and generally increase fiscal accountability of NPCs. 

Of the many important provisions that will be cemented by the NPC Act, notable aspects include:

  • streamlining of the incorporation process due to incorporation as of right;
  • definition of the capacity and powers of an NPC as a natural person;
  • definition of duties and standard of care for directors;
  • differentiation between soliciting corporations (those that solicit donations from the public) and non-soliciting corporations, with different financial reporting requirements for each;
  • requirement for all NPCs to make their financial statements available to their members, directors and officers, as well as to the director of the NPC Act who is appointed to oversee compliance with the legislation;
  • articulation of procedures for fundamental changes such as amalgamation, continuance and dissolution; and
  • availability of oppression and derivative action remedies for members of an NPC.

Directors of smaller NPCs may want to take note of a provision of the NPC Act enabling members to enter into a unanimous member agreement. This provision enables the members of smaller NPCs to control or limit the powers of directors or to control the operation of the NPC. 

Directors should also be aware that under the new legislation, the articles of an NPC must contain a statement of purpose. The NPC may not carry on any activity or exercise any power outside its statement of purpose. Accordingly, directors will want to draft this provision carefully to ensure the corporation is able to operate as required to achieve the objectives for which it was created. 

In addition, directors will need to be mindful of the statement of purpose in all matters to ensure that their decisions as directors do not cause the NPC to act outside its authorized scope of activity. 

Industry Canada will make additional information available once the legislation comes into force; however, directors may want to consider adopting a transition plan to prepare the necessary changes to the NPC's bylaws and articles and to continue into the NPC Act framework. 

In some NPCs, the process to effect significant changes may be slow and cumbersome and, with the risk of possible dissolution for those who do not effect continuance within the mandated period, the consequences of failing to act in a timely manner may be serious. 

Copies of the NPC Act are available from the Parliament of Canada website at www.parl.gc.ca. 


This article was prepared with the assistance of Erica Weiss , articled student at Lang Michener LLP. 

This article appeared in the December 1 - 7, 2009 issue of Business in Vancouver.