In anticipation of the Ontario Not-for-profit Corporations Act, 2010 (the “new Act”), many Ontario not-for-profit corporations established by letters patent under the Corporations Act (the “old Act”) have turned their minds to reviewing their by-laws. Some have even gone so far as to adopt new by-laws for compliance with the new Act. With this in mind, it is important to clarify that the new Act has not come into force and will not be law until it does. Accordingly, any changes to an Ontario not-for-profit corporation’s governing documents must still be made in accordance with the old Act. A failure to make changes to the by-laws properly now could lead to challenges of validity in the future.
For starters, it is important to remind Ontarians that the new Act hit a bump in the road when Bill 85 died on the order paper when the provincial election was called last year. While we anticipate that it will be in 2016, no date for the new Act to come into force has been set. Because we are waiting for a new technical amendments bill and also draft regulations, it is very difficult to say what rules will need to be followed in the not-so-distant future. Notwithstanding, many corporations are taking advantage of this opportunity to review their governance model and amend their by-laws. While there may be good reason for some to get a jump on things, take heed not to mess things up in the process.
Remember to check your letters patent
The most common mistake we see being made is a failure to comply with the letters patent (or supplementary letter patent, if issued). We cannot overemphasize the importance of obtaining and reviewing these documents before making any changes to the by-laws. Directors and officers will likely find the letters patent in the minute and record book of the corporation. If necessary, copies of the incorporation documents that the government has on file can be requested from Service Ontario, although letters patent are only available on micro-fiche.
Without a copy of a corporation’s letters patent, there is no way to confirm what is included in the special provisions section. For example, many corporations have special provisions in their letters patent establishing, among other things, classes of membership and membership qualifications. Yet these clauses are also commonly found in by-laws. The risk is that a corporation may inadvertently make changes to the classes of membership or membership qualifications by amending their by-laws when such changes must be made by application for supplementary letter patent. Only by reviewing the letters patent, can one ensure that conflicts do not exist with the by-laws. In the event of a conflict, the letters patent would prevail.
In our experience, there also happens to be some confusion around amending by-laws under the old Act. This may be because some amendments do not become effective unless and until they are confirmed by at least two-thirds of the votes cast by the members. (For example, amendments to by-laws respecting delegates and the disposition of property on dissolution.) Other by-law amendments enacted by the board of directors are effective immediately but require confirmation by a majority of the votes cast by the members at the annual general meeting or a special meeting called to deal with the by-law.
In summary
It is a good idea for Ontario not-for-profit corporations to begin discussing matters of corporate governance with an eye to the new Act. Look for the letters patent and, if appropriate, strike a committee to review the by-laws. Perhaps even begin to adapt the existing by-laws for compliance with the new Act or start from scratch with a new standard by-law. However, before implementing any changes, keep in mind that Ontario not-for-profit corporations are still being governed under the old Act and must comply with their letters patent and by-laws. In other words, be careful not to disregard the old Act in anticipation of the new one.
Joel Secter is a lawyer with Drache Aptowitzer LLP. He can be reached by email at jsecter@drache.ca.
