December 6, 2017
This article was authored by Neil McCormick and Spencer Ebbert.
The (Ontario) Cutting Unnecessary Red Tape Act, 2017 received royal assent on November 14, 2017. That statute operates to amend a number of other Ontario statutes, including the (Ontario) Corporations Act (“OCA”), ostensibly to remove “red tape”. The amendments to the OCA will be of particular interest to not-for-profit corporations that are governed by the OCA, since they serve to modernize key, and often criticized, elements of it. In that sense, the amendments to the OCA are welcome. However, it is worth lamenting that even with the amendments, the OCA remains a largely antiquated and cumbersome statute. Further, the amendments will likely mean that the implementation of the long-awaited Not-for-Profit Corporations Act, 2010 (“ONCA”) will be further delayed.
As described below, some of the amendments to the OCA entered into force upon royal assent, others will enter into force on January 13, 2018, and the remainder will enter into force on one or more dates that have not yet been determined. The following is a summary of some of the more material amendments to the OCA:
Conducting Corporate Business through Electronic Means
The amendments permit members’ meetings to be held using telephonic or electronic means, unless the by-laws of the corporation provide otherwise. In addition, they allow notices of members’ meetings to be delivered electronically. As a result, the amendments simply permit what many corporations have been doing anyways. These amendments entered into force on November 14, 2017.
Capacity of a Natural Person
Effective January 13, 2018, corporations governed by the OCA will have the capacity, rights, powers and privileges of a natural person – powers that for-profit corporations have had for decades. This amendment clarifies that OCA corporations may engage in activities that are not set out in their constating documents, provided those activities are not contrary to their constating documents. Arguably, with the powers of natural persons, some of the “incidental powers” of corporations under the OCA are redundant, but the suite of amendments does not alter those incidental powers.
Impacts on Directors
At present, the OCA is silent upon the fiduciary duties of directors and officers. This has the effect of importing the common law on those duties, including a “subjective” standard of care. That standard of care takes into account the particular skills of a director in assessing whether or not she or he has discharged their duties. In the result, highly skilled or experienced directors are held to a higher standard than less skilled or experienced colleagues on a board.
Effective January 13, 2018, the OCA will be amended to express the fiduciary obligations of directors and officers in the same way that those duties are expressed in the ONCA, the Canada Not-for-profit Corporations Act, and other business statutes. This will include an “objective” standard of care (i.e., that of a reasonably prudent person) in place of the subjective standard.
In addition, as of November 14, 2017, members have the ability to remove a director from office by majority vote instead of a two-thirds vote, except directors who are directors by virtue of their office. However, where letters patent or by-laws were in place prior to November 14, 2017, a corporation may continue to require that the decision to remove a director be approved by a two-thirds vote.
Finally, once amended at a future date, a person may be a director even though they are not a member the corporation. However, this must be expressly provided for in the corporation’s by-laws.
Ability to Waive Appointment of Auditor and Audit
As of January 13, 2018, where a not-for-profit corporation has revenue of less than $100,000, the members will be able to pass an extraordinary resolution waiving the appointment of an auditor and audit for that financial year. Under this section, an extraordinary resolution will require at least eighty percent 80%) of the votes cast at a general meeting. Previously, the decision to waive the appointment of an auditor had to be approved unanimously.
Finally, it is worth noting that several of the amendments to the OCA explicitly provide that they are only to apply until the ONCA enters into force. This suggests that the Government has not abandoned the ONCA, but there is no clear indication of when it will enter into force.
OCA corporations should review their constating documents to determine if they should be amended to take advantage of some of the amendments contained in the Cutting Unnecessary Red Tape Act, 2017, such as providing for electronic meetings and notice.
Alternatively, the directing minds of OCA corporations may wish to ask themselves whether or not the amendments to the OCA go far enough to justify remaining incorporated under the OCA (among other considerations) while the implementation of the ONCA is further delayed. Continuing under the Canada Not-for-profit Corporations Act, which offers many advantages over the OCA, may be advisable.
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