On October 19, 2021, and after over a decade of delays, the provincial government finally replaced Ontario’s Corporations Act (the “OCA”) with the new Not-for-profit Corporations Act, 2010 (Ontario) (the “ONCA”). By modernizing the OCA’s outdated framework with respect to not-for-profit entities, the ONCA is now Ontario’s governing legislation for such entities. As expected, with this legislative shift came significant changes for existing not-for-profit corporations (“NFPs”).
While it has been over two years since the ONCA came into force, NFPs still have until October 18, 2024 to comply with the new legislation. As such, NFPs should act quickly to review, update and file their governing documents to ensure compliance. While NFPs are not required to amend their governing documents, failing to do so may result in certain provisions being deemed amended to the extent necessary to conform with the ONCA. Accordingly, it may be in an NFP’s best interest to amend its governing documents to avoid any uncertainty in determining its obligations under its governing documents and when certain provisions are rendered invalid by the ONCA.
This article provides a non-exhaustive, high-level overview of the changes necessary to existing NFPs. Further, while the ONCA includes additional legislative changes for charities and public benefit corporations, this article focuses solely on the necessary amendments to NFPs that do not qualify as charities or public benefit corporations. If you are a charity or public benefit corporation that requires assistance, a member of Soloway Wright LLP’s Business & Corporate Group would be happy to assist you.
UPDATING A NOT-FOR-PROFIT’S CONSTATING DOCUMENTS (FORMERLY, “LETTERS PATENT”)
To begin, an NFP may need to review and update its letters patent and any supplementary letters patent by filing articles of amendment to ensure compliance with the ONCA, which replaces the term “letters patent” with “articles of incorporation” or “articles”.
Purposes:
For an NFP that has been incorporated for several years, the purposes described in its letters patent may no longer accurately reflect the NFP’s current purposes. NFPs should therefore carefully review their stated purposes to make sure that they capture the corporation’s current missions and activities. Furthermore, and unlike the OCA, the ONCA now provides that NFPs may have purposes that are commercial in nature, as long as the corporation’s articles stipulate that any such commercial purposes are solely intended to support or advance the corporation’s not-for-profit purposes.
Directors:
The ONCA now allows NFPs to set a minimum and maximum number of directors. In preparing or amending its articles, an NFP may now include either a fixed number of directors, or a minimum (of at least three) and maximum number of directors.
Under the ONCA (and although they can be members), directors may, but are no longer required to be members of the corporation. To the extent that an NFP’s current letters patent or supplementary letters patent require directors to be members, this may be amended to allow a wider pool of candidates to become directors.
Membership Classes and Voting Rights:
If an NFP has more than one class of members, it must now list such classes of members in its articles, as well as the voting rights of each class. If an NFP does not specify what voting rights each class has, the default rule under the ONCA is that each member of every class will be allowed one vote at every meeting of members.
Distribution of Property on Dissolution:
Should an NFP wish to establish rules to apply upon its dissolution, such as the distribution of any remaining property, these rules are only valid if they are laid out in the NFP’s articles. If an NFP’s articles are silent, then the ONCA stipulates that its property will be distributed rateably to its members according to their rights and interests in the NFP.
UPDATING A NOT-FOR-PROFIT’S BY-LAWS
Conditions of Membership:
Under the ONCA, the by-laws of an NFP must now set out the conditions required for being a member, including whether a corporation or other entity may be a member. If an NFP’s articles provide for two or more classes or groups of members, its by-laws must also provide the conditions of membership for each class or group, the manner of withdrawing from a class or group or transferring membership to another class or group and any conditions thereunder, and the conditions on which membership in a class or group ends.
If an NFP wishes to have ex-officio members (that is, members by virtue of their office), its by-laws must now state that ex-officio members are permitted.
Termination of Membership and Member Discipline:
An NFP’s by-laws may stipulate how a membership ends. If they are silent, the default rule under the ONCA is that a membership terminates when the member dies or resigns, is expelled, the term of membership expires, or the NFP is liquidated or dissolved.
Under the ONCA, an NFP’s by-laws or articles may now provide its board of directors the power to terminate and/or discipline a member, and if so, must set out the circumstances and the manner in which that power may be exercised. In the absence of this express authority, an NFP’s board does not have the right to terminate or discipline its members.
Directors:
As previously noted, a director of an NFP does not need to be a member of the corporation (unless its by-laws state otherwise). While there is no limit on the number of times a director may be re-elected, the ONCA now allows a director to serve for a maximum of four years, as opposed to three years under the old legislation.
Expanded Borrowing Powers:
Previously, if an NFP wanted to be empowered to borrow money, its by-laws had to specifically provide for this, and such powers needed to be approved by the NFP’s members. However, the ONCA now gives directors the right to borrow without member authorization, unless the articles or by-laws state otherwise. NFPs should therefore consider whether their existing borrowing powers, if any, should be amended or deleted in light of these legislative changes.
NEXT STEPS
As the October 18, 2024 deadline for compliance with the ONCA is fast approaching, NFPs should now be reviewing and updating their governing documents if they have not already. Soloway Wright LLP’s experienced legal team is ready to help your corporation transition into this new legislative regime. Please contact any member of our Business & Corporate Group for more information.
About the Author: Clara Lockhart joined Soloway Wright in 2023 as a member of the Business & Corporate and, Corporate Finance and Securities Law groups after summering and articling with the firm. Clara maintains a general corporate and commercial practice and assists clients with a broad range of transactions including incorporations, financing, asset and share purchases, mergers and acquisitions, non-profit matters, and corporate reorganizations.
Soloway Wright LLP is a community-based law firm with offices in Ottawa and Kingston. With over 75 years of experience, our team of over 35 specialty lawyers in Ottawa and Kingston offer a dynamic blend of knowledge and experience to clients requiring assistance with Business Law, Commercial Leasing, Commercial Litigation, Condominium Law, Construction Law, Corporate Finance & Securities, Employment, Labour & Public Law, Workplace Investigations, Environmental Law, Estate Planning & Administration, Insurance Law, Medical Malpractice, Personal Injury, Municipal, Land Development & Expropriation, Real Estate & Development, and Tax Law matters. Our goal is to bring your legal issue to an effective, affordable, and successful conclusion.
DISCLAIMER: This article is for general information purposes only and is not (and should not be construed as) legal advice. The information contained herein summarizes only certain aspects of the subject matter and is not a comprehensive review of applicable law. All of the foregoing is subject to legal and accounting advice based on the particular circumstances of each potential client.
