As described in our previous article, the Ontario Not-for-Profit Corporations Act, 2010 ("ONCA") entered into force on October 19, 2021. In doing so, it largely replaced the out-dated Ontario Corporations Act ("OCA"). The purpose of this article is to explore some of the differences between ONCA and the OCA to assist Ontario not-for-profit corporations to understand the impacts of this new statute on them.
Although there are many differences between the two statutes, some of the differences are skin-deep, such as using the term "registered office" instead of "head office." Also, the statutes are not as far apart as they once were. This is because both the OCA and ONCA were amended several times in the decade after ONCA was first adopted in 2010 (before it entered into force). The OCA, in particular, was amended to include concepts reflected in ONCA, such as the fiduciary obligations of directors and provisions to facilitate electronic meetings. As a result, many Ontario not-for-profit corporations will not find the transition to ONCA to be especially jarring.
In comparing the two statutes, we believe the following differences are worth noting:
1. Public benefit corporations
- ONCA creates the concept of "public benefit corporations" and distinguishes them from non-public benefit corporations. Public benefit corporations consist of charitable corporations or corporations that receive donations or gifts of a certain amount from members of the public or in the form of grants from Government. Among other requirements, not more than one-third of the directors of a public benefit corporation can be employees of the corporation or its affiliates. Special audit-related requirements also apply to public benefit corporations.
2. Directors and officers
- The OCA requires corporations to have a President who is a director as well as a Secretary. ONCA does not prescribe the officers of a corporation.
- The OCA requires directors to be members of the corporation (with limited exceptions). In some cases, corporations addressed this requirement by making the directors non-voting members. ONCA does not require directors to be members. Some corporations may wish to remove directors as non-voting members as part of their transition to ONCA.
- In addition, the eligibility criteria for directors have changed under ONCA.
- ONCA codifies the requirement for directors to manage or supervise the management of the activities and affairs of the corporation. It also imposes limits on the ability of directors to delegate their powers to a managing director or a committee of directors (e.g., an executive committee).
- ONCA modernizes the regime for indemnifying directors and officers to bring it into line with the Canada Not-for-profit Corporations Act and other business statutes. ONCA also codifies a due diligence defence for directors.
- The regime for addressing conflicts of interest is also different under ONCA. Unlike ONCA, the OCA does not address conflict disclosures by officers and does not address the impact on quorum that results when a director is excluded from a Board meeting due to a conflict. Many corporations will need to update their conflict of interest policies or codes of conduct to align them with the ONCA conflict of interest requirements.
- The OCA provides that directors have to be elected annually unless the By-laws provided otherwise. It caps the length of a director's term at five years in cases where the By-laws provide for the election and retirement of directors in rotation. Under ONCA, directors can be elected for no more than four years.
3. Member rights
- While the OCA has mechanisms for members to requisition meetings and to introduce resolutions at meetings of the members, these mechanisms were used infrequently and not well-understood. ONCA includes a more modern requisition and proposal-making regime that is similar to the regimes under the Canada Not-for-profit Corporations Act as well as business corporations statutes.
- ONCA codifies various remedies that generally concern the members, including the oppression remedy, derivative actions, and applying to a court to review an election. Under the OCA, member remedies were grounded in the common law, which was sometimes difficult to apply in the not-for-profit context.
- ONCA lowers the threshold that is required for members to remove a director from office to an ordinary resolution. Under the OCA, a special resolution is required.
- It is now possible for corporations not to use proxies, but if they do use them, there are different requirements to follow. Some corporations may embrace the option not to use proxies in favour of electronic meeting tools. Corporations that continue to use proxies should have their form of proxies reviewed to ensure compliance with ONCA.
5. By-law amendments
- ONCA imposes a different regime for By-law amendments. More particularly, ONCA requires certain types of By-law amendments to be approved by a special resolution of the members. In contrast, the OCA was largely silent about this. It only requires special resolutions in respect of By-laws relating to delegates (although many OCA corporations used the special resolution threshold for other amendments).
- While OCA corporations could dispense with appointing an auditor (in theory), in practice it was often difficult to do because unanimous member approval was required. ONCA makes it easier for some corporations to use a "review engagement" instead of an audit.
- If a corporation has an Audit Committee, ONCA provides that a majority of the committee must not be officers or employees of the corporation or its affiliates. In addition, the corporation is required to give notice to the auditor or the person conducting a review engagement of meetings of the committee, and the auditor or person conducting a review engagement is entitled to attend those meetings. The OCA contains no such requirements.
- ONCA requires directors and officers to immediately notify the Audit Committee (if there is one) and the auditor or person who conducted a review engagement of any error or misstatement in a financial statement prepared as part of an audit or review engagement.
Because of these differences, and others that are not reflected in this article, it is advisable for Ontario not-for-profit corporations to receive legal advice on the impacts of ONCA to their corporations.
How we can help
Should you have any questions about this article you can contact the author, Neil McCormick or a member of our Charities & Not-for-Profits group.