One of the many issues that Ontario not-for-profit corporations should be concerned about in 2014 is preparing for transition under the new Ontario Not-for-Profit Corporations Act, 2010 (ONCA). Having been enacted for more than three years, it is anticipated that the ONCA will at last be proclaimed sometime in 2014. Perhaps one of the New Year’s resolutions for Ontario corporations is to come to grips with the requirements of the ONCA and to start planning their transition.
Proclamation date delayed
By way of background, the Ontario Corporations Act (OCA) has not been substantively amended since 1953. The new ONCA received Royal Assent on October 25, 2010, but it is not yet in force. Once proclaimed into force, it will apply to all non-share capital corporations incorporated under Part III of the OCA.
The ONCA was originally anticipated to be proclaimed on July 1, 2013. In March 2013, the Ministry of Consumer Services announced that proclamation will be delayed to January 2014 at the earliest. Following the announcement, new amendments to the ONCA were embodied in Bill 85, which received first reading on June 5, 2013. These proposed changes to the ONCA will have significant impact on the application of the ONCA. The Ministry announced that proclamation of the ONCA cannot proceed without these amendments.
In September 2013, the Ministry announced that Bill 85 was anticipated to be debated in the Legislature in fall 2013. Once Bill 85 is enacted, the ONCA is anticipated to come into force no earlier than six months afterwards in order to ensure adequate time for the sector to prepare for transition. As of the adjournment of Ontario Legislature on December 12, 2013, Bill 85 had not progressed beyond first reading. The Ontario Legislature is scheduled to reconvene on February 18, 2014.
To date, the Ministry has released a number of helpful tools to assist the sector. These tools include a glossary of key terms, frequently asked questions, transition checklist, draft organisational by-law, and plain language guide. Community Legal Education Ontario is also available to provide support to corporations to transition to the ONCA through its “Get Ready for the ONCA” project.
As well, an electronic toolkit of communications material is available for use by corporations to explain the ONCA to their members and stakeholders. The toolkit includes presentation slides, speaking points, presenter questions and answers, newsletter and bulletin articles, web text and Facebook posts. The toolkit is available upon request by emailing ONCAtools@ontario.ca. However, regulations under the ONCA have yet to be released.
Transitioning into the ONCA
Transitioning under the ONCA refers to the process by which a Part III OCA corporation amends its constating documents to conform to the requirements in the ONCA.
Upon being proclaimed into force, the ONCA will automatically apply to all Part III OCA corporations. As such, OCA corporations are not required to take action in order to come under the ONCA. Any provisions in a corporation’s letters patent, supplementary letters patent, by-laws or special resolution that are inconsistent with the ONCA will be deemed to be amended to comply with the ONCA at the end of three years after proclamation. The problem with this approach is that it will become difficult to determine what provisions are deemed to be amended and in what way. However, amendments proposed by Bill 85 will, in effect, make the transition process mandatory.
Bill 85 proposes to require any provision in a by-law or special resolution that is required by the ONCA to be contained in the corporation’s articles must be added to the articles during the transition period. Failure to do so will result in those provisions becoming invalid when the transition period ends. The practical effect of this new requirement would mean that most, if not all, corporations would have to file articles of amendment.
Furthermore, Bill 85 also proposes to require that if a corporation was to file articles of amendment to amend its letters patent or to amend its by-laws or special resolutions during the transition period, it may do so only if it also makes all amendments that may be necessary to bring the document into conformity with the ONCA. This new all-or-nothing approach would mean that corporations will not be able to amend these documents a number of times over the transition period to slowly bring them into compliance.
Preliminary steps and considerations for transition
In preparation for a smooth transition into the ONCA, a corporation should begin by collecting and reviewing all of its governing documents. The next step is for the corporation to gain a clear understanding of the rules contained in the ONCA so as to determine how these new rules will impact its governance and what provisions to include in the articles of amendment and new by-laws.
Examples of questions to consider include: whether the current by-laws or the desired governance structure and process are inconsistent with ONCA requirements. If so, the corporation should consider how its governance structure and process would need to be revised in order to comply with the new ONCA requirements.
A corporation should also decide when to start the by-law review process. Key considerations in determining when to begin the process include the length of time and complexity of the process required in revising the by-laws; whether the by-laws will require substantive changes; the size of membership and time required to consult members; the board structure; whether changes to membership structure are required; and whether changes of corporate objects are required.
As a result of the sweeping changes the ONCA will bring about, it will be important for boards, executives, staff, and legal counsel of corporations in Ontario to become familiar with the provisions of the ONCA and to begin planning to transition under the ONCA once it is proclaimed in force. Although it is not known when the ONCA will be proclaimed, it would be prudent for corporations to start the preparation early and begin familiarizing themselves with how the ONCA will impact their governance and planning their transition under the ONCA