Gwenyth Stadig
Partner
Article
3
Co-authored by 2024 summer law students Amber LeBlanc and Andrea Leung.
Membership-related issues are common concerns for Ontario non-share capital corporations transitioning to the Ontario Not-for-Profit Corporations Act, 2010 (“ONCA”).
The ONCA came into force on Oct. 19, 2021, largely replacing the Ontario Corporations Act (“OCA”). As part of the transition between the two statutes, a grace period was included, allowing a corporation’s constating documents to operate notwithstanding any inconsistency with the ONCA for three years. However, that three-year grace period is coming to an end on Oct. 19, 2024. On that date any provisions that do not align with the ONCA will be deemed to be amended to the extent necessary to bring them into conformity with the ONCA.
With the deemed amendment date fast approaching, Ontario-based charities and not-for-profits should review their letters patent, supplementary letters patent, by-laws, and any other special resolutions or constating documents for compliance with the ONCA. Remaining passive and allowing deemed amendments to occur may create a confusing patchwork of obligations, wherein it may not be clear which of your corporation’s by-law provisions are in force, and which have been superseded by the ONCA requirements.
As Ontario-based charities and not-for-profits navigate transitioning to the ONCA, we are hearing repeatedly that membership-related issues can be a major obstacle. With requirements for both the board and membership to approve the corporation’s transition to the ONCA, the need to address membership concerns is paramount, especially if uncertainty surrounds who your members are or if records are outdated.
This is often an issue for historical corporations that haven’t reviewed their governing documents recently or have vague membership rules and out of date records. When a corporation is unsure who their members are, this creates a risk for the corporation since all members have a right to receive notice of and attend members’ meetings. If a member is excluded, even inadvertently, they could dispute the legal validity of the decisions taken at that meeting even if other critical factors, such as quorum, were met. This is an even bigger issue for ONCA corporations that are also registered charities who have tax compliance obligations regarding maintaining adequate books and records. If an Ontario-based charitable corporation does not know who its members are with certainty this may also be a tax compliance issue.
In our previous article, we noted some of the differences between the OCA and the ONCA. Relevant for corporations that are reviewing their membership structure, the ONCA includes a more structured regime for members to: a) requisition meetings and introduce proposals; b) codify various corporate law remedies for members; and c) lower the threshold required for members to remove a director from office. We also note that another relevant distinction between the OCA and ONCA is that directors are no longer required to be a member of the corporation under the ONCA.
The ONCA transition process offers a unique opportunity to reassess and enhance a corporation’s governance framework. It’s an opportune moment to address any deficiencies in your policies and records and align the membership structure with the corporation’s current needs and practices.
Under the ONCA, by-laws must clearly define membership, including provisions for different membership classes and procedures for withdrawal and cessation of membership. Membership rights should also be housed in a corporation’s Articles, if any. Corporations should evaluate whether their current membership structure remains relevant and effective. For corporations that have more than one class of members, consider whether multiple classes are still relevant or appropriate. Are there meaningful differences between the rights and obligations of the different classes or could they be merged into a single class?
If your corporation is grappling with deficient membership records, we encourage you to take proactive steps.
Addressing membership challenges during the ONCA transition not only ensures compliance but also strengthens the corporation’s governance and sets the stage for long-term success. By taking decisive action now, corporations can navigate the transition with confidence and build a solid foundation for the future.
Learn more about Gowling WLG’s Charities & Not-for-Profit service or contact any of this article’s authors.
NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Gowling WLG professionals will be pleased to discuss resolutions to specific legal concerns you may have.