Canada Not-For-Profit Corporations Act now in force - October 17, 2011

12 October 2011

The Canada Not-For-Profit Corporations Act (the "Act"), while given royal assent in June 2009 has remained largely not yet in force for the last two years. After a wait of two years, most of it is now in force as of October 17, 2011.

The new Act establishes a revised framework for the governance of not-for-profit corporations largely based upon the principles contained in all of the modern Business Corporations Acts. It adopts the modern approach of treating not-for-profit corporations as natural persons, giving them capacity and powers business corporations have had for many years. Under the new Act, not-for-profit corporations will have a full range of powers, largely taken for granted by most people, including the rights to buy and sell property, make investments, borrow funds and issue debt obligations; all without need to determine whether or not specific activities are ultra vires of the corporation. The Act sets out an objective standard of conduct for directors and clearer rules about various governance matters.

The new Act will also provide a streamlined incorporation process that entitles applicants to obtain incorporation "as of right" instead of seeking Ministerial approval. There will be options to file for incorporation electronically and the Act eliminates the existing requirement that Canadian not-for-profit corporations submit their by-laws and by-law amendments to Industry Canada for approval. Instead, a corporation's by-law or changes to by-laws will now only need to be filed with Industry Canada within twelve months of their passage.

The new Act establishes different financial reporting duties for different types of not-for-profit corporations. A soliciting corporation, one that solicits donations or gifts from the public or receives significant financial assistance from the government, will be required to make financial statements publicly available. Non-soliciting corporations will only be required to make their financial statements available to members, directors and officers. The Act further divides not-for-profit corporations into two categories: designated corporations and corporations that are not designated. Designated corporations are soliciting corporations with gross annual revenues for the last completed financial year of $50,000 or less; and non-soliciting corporations with gross annual revenues for its last completed financial of $1,000,000 or less. A designated corporation will only be required to have a review engagement carried out. A non-designated corporation will however be required to appoint an auditor and have the auditor carry out an "audit engagement", which essentially means a full audit.

Next Steps and Deadlines

All not-for-profit corporations incorporated under Part II of the Canada Corporations Act (the "Old Act") will have to obtain a Certificate of Continuance in order to have the new Act apply to them. That must be done within three years of October 17, 2011. A corporation that fails to file for a Certificate of Continuance by October 17, 2014 will be automatically dissolved.

Corporations wishing to continue under the new Act need to review their Letters Patent and by-laws and have their Certificate of Continuance application drafted and filed. They will also need to file a replacement by-law which wholly conforms to the new Act's provisions.

While the Order in Council did bring into force the majority of the Act on October 17, 2011, there remain certain portions of the new Act, which would have the effect of repealing certain portions of the Old Act, that are not yet in force. As a result, not-for-profit corporations incorporated pursuant to Part II of the Old Act ("Part II Corporations") arguably will continue to be able to apply for supplementary letters patent until the provisions generally dealing with supplementary letters patent are repealed. Industry Canada has confirmed to us that it will continue to review by-law amendments for Part II corporations after October 17, 2011.

This leaves some potential for confusion.

While the new Act's provisions providing protection for all members, whether voting or non-voting, are now in force. An example of that sort of protection is the new rule that non-voting members cannot be eliminated without notice and participation by those non-voting members in the approval of the change. The best view is that those provisions do not apply to Part II Corporations which have not continued under the new Act. There is thus a window during which by-law amendments and supplementary letter patent applications can to be made to Industry Canada to remove non-voting members without having to give them a right to vote on those changes. Nonetheless, the existence of those new rights in the New Act may lead to non-voting members complaining that they should be consulted or given certain rights to reflect the intent and new direction for not-for-profit corporations in Canada.

We would finally note there are no guarantees that the Old Act's provisions permitting supplementary letters patent to be applied for will remain unrepealed until October 17, 2014 when all Part II Corporations must be continued under the New Act. An Order in Council could be passed at any time changing this current regime and situation. While we do not believe that a change in the situation is likely during these three years, we continue to recommend that corporations wishing to remove non-voting members do so as quickly as possible.

Special Act corporations registered under Part III of the Canada Corporations Act are not required to continue under the Act but may do so depending whether doing so is to their advantage.

Please note that registered charities, in particular, need to be careful how they proceed. Failure to continue will result in dissolution and as a consequence, may lose their charitable registration and right to issue tax donation receipts. The organization may also then need to pay a revocation tax, which would be equal to the value of its remaining property. Furthermore, the manner in which the charity continues, including the terms incorporated into its Articles of Incorporation and by-law could result in the corporation no longer qualifying to be a registered charity.

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