publication date: Oct 31, 2012
author/source: Alexandra Tzannidakis
Any readers involved with a not-for-profit that is incorporated
under Ontario legislation should be aware that the law in this area is about to
change. The current Ontario Corporations
(OCA) hasn't changed substantially in nearly 60 years, so the new Ontario Not-for-Profit Corporations Act
(ONCA) that will replace it is likely be something of a shock to the system. However,
given that the ONCA has been under discussion in the news and the
not-for-profit sector for some time now, charitable corporations should have
some sense that something is changing, even if they are unsure of the details.
The need for continuance
The new Act is tentatively due to come into force on July 1,
2013. It completely replaces the old letters patent system with a statutory one
that is modelled on the Ontario Business
Corporations Act and the federal Canada
Not-for-Profit Corporations Act (CNCA). Since the change is so fundamental,
any organizations that are incorporated under the OCA will undergo a transition
to the new ONCA known as "continuance."
Unlike transition to the new federal incorporation
system under the CNCA, failing to continue under the new ONCA before
the end of the three-year grace period will not result in the corporation being
dissolved. But take note: if a corporation doesn't continue in time, its
letters patent and by-laws will automatically be deemed to comply with the ONCA.
This means that any provisions that can't be read as compliant with that Act will
become invalid to the extent of the inconsistency (ONCA ss.207(3)).
So, although the corporation will continue to exist, its directors
and members will have a great deal of trouble knowing which corporate
provisions are reliable without constant legal advice. Since this confusion can
also occur during the grace period because the new legislation will already
technically be in effect, the wisest move is to continue under the ONCA as soon
The continuance process
Besides replacing the letters patent with "articles of
continuance," the ONCA introduces a number of fundamental changes that could
have far-reaching consequences for a corporation. As part of continuance, OCA
corporations will have to do some careful review and amendment of their
governing documents to manage the implications of these changes. However, be aware
that the ONCA forbids certain charter amendments in connection with an
application for continuance. This complicated process is best undertaken with
the help of experienced legal advisors.
The first thing an OCA corporation should do is review its letters
patent, supplementary letters patent, special resolutions and by-laws to
determine where they may conflict with the new Act and what amendments need to
be made. The corporation's by-laws will
also need to be amended or, possibly more simply, completely redrafted based on
a model. It may take quite a while for the members and directors to fully
consider these changes, so again it is better to start on this process sooner
than later. As the Ontario government has not yet released the relevant
regulations, any by-law review at this time would be premature, but we do
expect the regulations to be released by January 1, 2013.
Based on their review, the corporation must then draw up Articles
of Continuance and whatever other documents are necessary, then seek membership
approval to authorize continuance. Once the corporation is authorized, it may
file the required documents with the Ministry
of Consumer Services (along with a fee, to be determined). If everything is
in order, the Ministry will issue the corporation a Certificate of Continuance.
Corporations that are registered charities will need to forward a copy of this
Certificate along with their Articles of Continuance and new by-laws to the Canada Revenue Agency.
Proper and timely completion of this process will preserve the
certainty and effectiveness of your corporation's governing provisions, and
allow the directors and members to fully understand and participate in the
critical changes brought about by the new legislation.
Alexandra Tzannidakis, B.A., LL.B. has been an
articling student with the Ottawa law firm of Drache Aptowitzer LLP since 2012.
She earned her undergraduate degree in Linguistics and English Literature from
McGill University in 2008, and went on to receive her degree in Law from the
University of Leicester in the United Kingdom in 2011. Alexandra writes on a
variety of issues related to Canadian not-for-profit law. You may reach her at firstname.lastname@example.org.