For Ontario nonprofits, there’s another new act in town

publication date: Oct 25, 2011
author/source: Joel Secter
Not long after the Canada Not-for-profit Corporations Act (CNCA) received Royal Assent, Ontario's Not-for-profit Corporations Act, 2010 (ONCA) was given Royal Assent as well. Like the CNCA, the ONCA will modernize the provincial not-for-profit sector by enhancing corporate governance, giving more rights to members and affording greater protections to directors and officers of non-share capital corporations.

While the ONCA draws extensively on the CNCA, there are material differences between the two statutes, and they cannot be approached as one and the same.

ONCA blesses commercial activities

Previously known as Bill 65, the ONCA will replace Part III of the Corporations Act which was first enacted in 1907 and has not been substantially updated since 1953. It will affect approximately 46,000 non-share corporations and almost 8 million volunteers around the province.

Amongst the other key features highlighted below, the ONCA will allow non-share corporations to engage in commercial activities where the revenues are reinvested in the corporation's not-for-profit purposes. If any of the purposes of a corporation are of a commercial nature, the articles must state that the commercial purpose is intended only to advance or support one or more of the non-profit purposes of the corporation. Nevertheless, despite the new corporate structure, the usual impediments to business operation by not-for-profits still exist in the Federal Income Tax Act.

Incorporation fast-tracked, members' rights enhanced

The ONCA will change the legal framework for non-share corporations in many ways. For starters, the current incorporation process is lengthy, normally taking six to eight weeks. Under the new legislation, incorporation could take under a week.

In addition, by providing a statutory duty of care for directors, as well as specific protection from liability, the ONCA is expected to enhance corporate governance and accountability. The ONCA will also enhance members' rights by including remedies for members of the corporation to pursue when they feel that either the interests of the corporation or their interests as members are not being represented.

New vocabulary - know where you fit

While a full survey of the changes that will affect Ontario's non-share corporations is beyond the scope of this article, it is important for organizations and practitioners to become acquainted with the new terminology. The ONCA differentiates between "charitable" and "non-charitable corporations" and "public benefit corporations" (PBCs) and "non-public benefit corporations" (Non-PBCs).

According to the ONCA, "charitable corporation" means a corporation incorporated for the relief of poverty, the advancement of education, the advancement of religion or other charitable purpose, and "non-charitable corporation" means a corporation that is not a charitable corporation.

"Public benefit corporation" describes two very different kinds of organizations: a charitable corporation; or a non-charitable corporation receiving over $10,000 in a fiscal year, either as donations or gifts from persons who are not its members, directors, officers or employees, or as grants or similar financial assistance from any level of government or a government agency.

Thus, we can summarize that there are three types of corporations under the ONCA:
  1. Charitable public benefit corporations,
  2. Non-charitable public benefit corporations, and
  3. Non-public benefit corporations
In order to ensure greater accountability, PBCs will be more tightly regulated than non-PBCs. The test for determining the type of corporation is applied at the end of each financial year (for the current financial period) and takes effect as of the date of the first annual meeting of members in the next financial year. The test must be applied annually.

If incorporating, choose carefully

Deciding whether to incorporate under the CNCA or ONCA will depend on many factors, such as the size of the organization and geographical scope of its activities. While national organizations that carry on interprovincial activities may prefer the CNCA, smaller organizations that are regionally focused may prefer the ONCA.

It is important to note that under the ONCA, there are no requirements to file by-laws, annual returns or financial statements. Furthermore, the ONCA has less onerous requirements to waive the appointment of a public accountant and have an audit.

Lengthy compliance period

It is anticipated that the ONCA will not come into force until late 2012, as time is required to develop regulations and prepare for the changes. Existing not-for-profit corporations will have three years after the ONCA comes into force to amend their letters patent and by-laws to conform to the new legislation.

Unlike the CNCA, the ONCA does not require existing non-share corporations to file articles of continuance. In the meantime, organizations not currently incorporated may choose to incorporate provincially under the current legislation or wait until the ONCA comes into force.

Joel Secter is a lawyer with Drache Aptowitzer LLP in Ottawa. He is a graduate of the University of Ottawa and has previous experience in dealing with tax and charity matters. Contact him.

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