In October 2011 new Federal Not-for-Profit legislation was passed and organizations affected were given three years to transition to the new requirements.The CNCA replaces Part II of the Canada Corporations Act and provides a simplified process, more flexibility and a clearly defined set of rules to govern the internal affairs of Federal not-for-profit corporations. Kelly Santini’s Business Group has launched a survey to determine if federally incorporated not-for-profit corporations are prepared for the new legislation, how long the conversion process is typically taking, what common pitfalls are being confronted and what lessons have been learnt thus far.
A summary of the findings and recommendations will be shared with all interested participants and all responses are confidential.
After months of speculation, the new Ontario Not-for-Profit Corporations Act (the “ONCA”) is scheduled to come into effect on January 1, 2013. Similar to the Canada Not-for-Profit Act, which came into force in October 2011, the ONCA will modernize the way Not-for-Profit corporations in Ontario are dealt with, including online and instantaneous incorporation, which means no more waiting.
On January 1, 2013, the ONCA will apply to not only every new non-share capital corporation, but will also automatically apply to every non-share capital corporation governed under the Corporations Act (Ontario). However, every existing non-share capital corporation will be required to follow their existing letters patent and by-laws until such time as they have taken steps to file articles of continuance to bring them into compliance with the ONCA.
The first step will be to review your current by-laws and charter documents and to make any necessary changes so that you are in compliance with the Act. Remember that director and member approval is required to amend the by-laws. A special resolution, requiring 75% of the members, is then needed to authorize the filing of the articles of continuance.
Non-share capital corporations will have three years to review and amend their by-laws, letters patent, supplementary patent and to file the required articles of continuance. If after three years, the necessary documents have not been filed, the amendments are deemed to have been made.
The reliance on this deemed compliance will only lead to ambiguity and it is wise that Directors and Officer start thinking about the future of their organization and what actions they will need to take to ensure they comply with the new legislation.
The government is said to be working on a guide to the new Act along with a transition checklist and default bylaws. We will be sure to provide this key information when it is released later this summer.
As music fans in Eastern Ontario will know, the TD Ottawa Jazz Festival is currently taking place in Confederation Park. For the past few years now I have had the pleasure of serving on the Board of Director of the Jazz Festival and am currently the President. Like most people involved in not-for-profit organizations I was motivated to join the Jazz Festival Board by a desire to give back to the community in a way that matched both my skills and personal interests.
Ottawa’s Jazz Festival is now in its 32nd year and like a lot of not-for-profit organizations it has grown and matured considerably over the years. This growth has driven the need for the Board of Directors to examine its role and to ensure that issues of governance are always addressed. After all, members of the Board can, in certain circumstances, attract personal liabilities
It is the distinction between the role of the Board and the role of the staff responsible for the day-to-day operations that most often gets blurred in not-for-profits. In the case of the Jazz Festival our Board could easily fall into the trap of spending hours every meeting talking about musicians we’d like to see at the Festival. But to do so would result in us failing to carry out the duties of the Board. Proper governance of the Festival is paramount, and that is where we have to focus our efforts.
Governance is an enormous topic. Directors have significant duties and responsibilities that they should be aware of before accepting the position. In the case of the Jazz Festival our priorities are financial management, emergency planning and contingency planning. Running into financial difficulties is a pretty common problem for not-for-profits. Any not-for-profit organization will want to ensure that the proper controls are in place to manage costs, review revenue and provide approval for all major expenditures.
Music festivals have suffered from some tragic and unexpected accidents recently. A priority for us is of course taking the steps needed to try and prevent the incidents from occurring and to prepare an emergency plan if something does occur. This ranges from evacuation plans for the Festival site to carefully reviewing our insurance coverage for all possibilities.
Our third priority is contingency planning. Executive Director Catherine O’Grady has been running the show at the Jazz Festival for many years. How we would manage should she ever become ill or leave her role is a question for which we must always have an answer. The Festival has sponsors and government departments that support us and we need to ensure the event they support is first rate.
Each not-for-profit organization is different and it is up to the Board of Directors to use their knowledge of good governance to identify the priority areas. Most critically, each director must remember to remove themselves from their interest in the day-to-day operations, no matter how enjoyable or rewarding it may be, in order to focus on fulfilling the role of the Board.
Enjoy the Festival!
Since the introduction of the new federal not-for-profit legislation, we have assisted several not-for-profits who have struggled to track down the key documents needed for continuance under the new not-for-profit legislation. Key documents such as the Letters Patent or Supplementary Letters Patent and a current copy of the by-laws must be located before the conversion can take place. If you are a federally registered charity, it is also important to have copies of important documents from CRA available for review.
As for corporate records such as minutes, resolutions and registers, it is not unusual for an organization to have missing or incomplete records. Unfortunately, when dealing with incomplete or missing corporate records there are no quick solutions or statutory provisions to rely on.
The first step is to obtain and examine the records that actually exist which are often found in an official binder or folder, often referred to as the “minute book”. Even if there is not an official “minute book” there is likely a folder somewhere that has all the important corporate documents to date including your charter documents. You may also need to contact former officers or directors of the corporation and also the lawyers who may have previously acted for the corporation.
Once all searches are exhausted it is time for the corporation and their lawyer to reconstruct the material corporate events as best they can. Your lawyer will work with you to determine what material documents are missing and may create an omnibus resolution to bring the records up to date. For example there may not be any record of the officers or directors of the corporation so it will need to be traced as carefully as possible and set out in a resolution.
Effective record keeping of corporate documents is not only a wise and essential part of your corporation, it is required under the new legislation. Your corporate secretary, whether it the lawyer you have retained, or a member of your organization should maintain detailed minutes and review the documents yearly to make sure everything is kept up to date.
Federally incorporated not-for-profits have until October 2014 to complete their conversion to the new legislation. If you are provincially incorporated then your time is coming. The Province of Ontario is expected to enact similar legislation later this year.
It’s expected that the Ontario Not-For-Profit Corporations Act, 2010 (NFPCA), which received Royal Assent on October 25, 2010, will finally come into force in late 2012. Once in force, the NFPCA will replace the Corporations Act (Ontario), which currently regulates not-for-profit corporations in Ontario.
The NFPCA will provide a regulatory framework similar to what is currently available to Ontario “for-profit” corporations and largely mirrors the recent changes to federal not-for-profit corporations which were implemented in the Canada Not-For-Profit Corporations Act, which came into force on October 17, 2011.
In the coming months, we expect that the provincial government will begin to release draft documents and transition guides to assist in the continuance of current not-for-profit corporations. Corporations can now begin familiarizing themselves with the new legislation and start planning their continuance under the NFPCA. More information on the Ontario Not-For-Profit Corporations Act, 2010 is available here.
For federally incorporated not-for-profits, 2012 will be a year when boards begin to plan for the changes required by October 2014. For a short summary of the changes brought in by the new legislation and the steps boards should be taking to comply, please click here.