This paper discusses the new Canada Not-for-profit Corporations Act (NFP Act) by providing a brief history of the Canada Corporations Act (CCA) and the objectives of the NFP Act. It will then discuss some of the provisions of the NFP Act giving information on both the CCA and the NFP Act.
Table of contents
- Brief history of the federal not-for-profit statute
- Objectives of the Canada Not-for-profit Corporations Act (NFP Act)
- Part 1 – Interpretation and application
- Part 2 – Incorporation
- Part 3 – Capacity and powers
- Part 4 – Registered office and records
- Part 5 – Corporate finance
- Part 6 – Debt obligations, certificates, registers and transfers
- Part 7 – Trust indentures
- Part 8 – Receivers and receiver-managers
- Part 9 – Directors and officers
- Part 10 – By-laws and members
- Part 11 – Financial disclosure
- Part 12 – Public accountant
- Part 13 – Fundamental change
- Part 14 – Liquidation and dissolution
- Part 15 - Investigation
- Part 16 – Remedies, offences and punishment
- Part 17 – Documents in electronic or other form
- Part 18 - General
- Part 19 – Special act bodies corporate without share capital
- Transition plan
Brief history of the federal not-for-profit statute
The concept of a not-for-profit corporation was first added to the federal general corporate statute Footnote 1 in 1917. Prior to the Companies Act Amending Act, 1917, federal non-share capital corporations were only created by Special Acts of Parliament. Footnote 2 In 1917 section 7A was added to the Companies Act. Section 7A allowed the Secretary of State of Canada to issue letters patent for the creation of corporations without pecuniary gain and with "objects of a national, patriotic, religious, philanthropic, charitable, scientific, artistic, social, professional or sporting character, or the like."Footnote 3
Subsection 7A(6) included a list of the sections in Part I of the Companies Act that did not apply to such a corporation. This included provisions related to shares (e.g., issuance of shares), liability of shareholders and issuance of a prospectus.
The provisions in section 7A have not substantially changed since their enactment in 1917. Section 7A was renumbered section 8 as part of the Revised Statutes of Canada 1927. In 1934, the Companies Act was amended to create a new "Part II – Corporations without share capital" of the Companies Act that divided section 8 into sections 139 to 143. The name of the Companies Act was changed to the CCA by chapter 52 of the Statutes of Canada 1964-65.
Over the years non-substantive changes have been made to the provisions including changing the reference to the Secretary of State to the Registrar General of Canada and then simply to the Minister. Footnote 4 Also, in 1934 the list of cross-references in subsection 7A(6) became a positive list of the provisions that apply to these corporationsFootnote 5, instead of a negative list of provisions that do not apply.
Since the early 1970s, the federal government has been working to replace Part II of the CCA with a stand-alone federal not-for-profit corporate statute. Seven bills were introduced in Parliament and died on the Order Paper until the 8th attempt finally made its way through the parliamentary process and came into force on October 17, 2011.
Objectives of the Canada Not-for-profit Corporations Act (NFP Act)
As stated by The Honourable Diane Ablonczy, Minister of State (Small Business and Tourism) "This new Act would promote accountability, transparency and good corporate governance for the not for profit sector and is the first significant modernization of Canada's not-for-profit legislation since 1917."Footnote 6 The Act is a modern framework that meets the needs of large and small corporations while providing accountability and transparency. As a result, it should foster greater public trust and confidence in the not-for-profit sector. It should also improve the flexibility and efficiency of the legislation by reducing the regulatory burden on both the corporations and the federal corporate registrar.
Part 1 – Interpretation and application
The NFP Act starts with a list of definitions that are applicable throughout the act. One of the problems with the CCA is that it contains few definitions. The few definitions that exist in the CCA were written for share corporations, which make them difficult to apply to non-share corporations. For example, what is a public or a private corporation in non-share situations? The definitions in the NFP Act were all written for corporations without shares. Although most of the definitions are based on equivalent definitions in the Canada Business Corporations Act (CBCA), they have been modified to meet the needs of not-for-profit corporations.
One of the more important provisions is the definition of "soliciting corporation"Footnote 7. Although this definition is somewhat complex, it has significant implications for:
- corporations' financial reporting requirements;
- the number of directors that are required;
- the dispersal of assets upon liquidation; and
- whether the corporation may have a unanimous member agreement.
In essence, the definition is aimed at corporations that receive public money, directly or indirectly, from public donations or government grants.
To determine if a corporation is soliciting, the corporation must examine it sources of revenue each year as part of its preparation of financial statements. The decision is based on its financial year end, although the legal change of status occurs at the annual meeting of members.
If the corporation has income over $10 000 in a single financial year from a public source, it will become a soliciting corporation. Public sources of money include:
- donations or gifts from non-members;
- grants or other financial assistance from a government; or
- money received by another corporation that would be considered soliciting (e.g., the money was received as a donation or gift from non-members or as a grant or other financial assistance from a government).
Once a corporation becomes soliciting (i.e., at its annual meeting of members), it is soliciting for the next 3 years. The corporation will cease to be considered soliciting when it does not meet the definition of soliciting corporation for three financial years in a row. Alternatively, if the corporation receives public money in a future financial year, the time period for being a soliciting corporation starts again.
The NFP Act has an application provision to indicate that the Act applies to any body corporate incorporated or continued under it.Footnote 8 It also applies to certain corporations without share capital created by Special Acts of ParliamentFootnote 9.
According to Part 1 the purpose of the Act is to allow for the creation or continuance of corporations without share capital for the purposes of carrying on legal activities.Footnote 10 This purpose section does not repeat the CCA's requirements concerning no pecuniary gain to members and the list of permitted objects (i.e., national, patriotic, religious, philanthropic, charitable, scientific, artistic, social, professional or sporting character, or the like objectsFootnote 11). There is no reference to the phrase "without pecuniary gain to members" or to a list of objects anywhere in the NFP Act.
Part 2 – Incorporation
The NFP Act allows for a system of incorporation "as of right" to replace the existing system of letters patent. An "as of right" system means there is minimal discretion on the part of the Director, appointed under the Act, to determine which organizations can be incorporated. The Director must issue a certificate of incorporation if the required documents (i.e., articles of incorporation and notice of registered office and initial directors) are filed, are in conformity with the Act, and the required fee is paid. This contrasts with the discretion the Minister had under the CCA's letters patent system. The NFP Act also allows for one incorporator, unlike the CCA requirement of at least three incorporators.Footnote 12
The information required in the articles is similar to the information required on an application for letters patent and includes:
- the name of the corporation;
- the province for the registered office;
- the purpose of the corporation; and
- the name or names of the incorporators.
New information required in the articles is:
- the classes or groups of members;
- the number of directors; and
- a statement concerning the distribution of assets on liquidation of the corporation.
Part 2 also sets out the rules for the name of a corporation. The rules in the Act together with the more detailed rules in the regulations are similar to the name-granting rules under the CCA and the CBCA.
Part 3 – Capacity and powers
The NFP Act expressly states that a corporation has the capacity and rights of a natural person. Also, the concept of a corporation's activities being considered ultra vires has been eliminated. This replaces the CCA provisions that are not clear as to whether a corporation has the capacity of a natural person and whether the doctrine of ultra vires applies due to the lists of corporate powers (e.g., sections 15 and 16 of the CCA) and the limited list of objects (e.g., subsection 154(1) of the CCA) in the CCA.
Part 4 – Registered office and records
The requirement for a corporation to maintain a head or registered office has not changed although the articles specify the province for the registered office instead of the place (i.e., municipality and province) as required in the letters patent under the CCA. The NFP Act requires corporations to inform the Director of a change in the registered office address within 15 days of the change. The CCA only allows information on the address of the head office to be collected once a year on the annual summary. This frequently leads to complaints that the information in Corporations Canada's records and on its website is out of date for an extended period.
The requirements for the corporate records are similar to those under the CCA, namely:
- the articles and the by-laws, and amendments to them, and a copy of any unanimous member agreement;
- the minutes of meetings of members and any committees of members;
- the resolutions of members and any committees of members;
- if any debt obligation is issued by the corporation, a debt obligations register;
- a register of directors;
- a register of officers;
- a register of members;
- accounting records;
- the minutes of meetings of the directors and any committees of directors; and
- the resolutions adopted by the directors or any committees of directors.Footnote 13
The biggest change involves who has access to the information in the corporate records. The board of directors has access to all the records, including the accounting records. Members of the corporation and creditors have access to the articles, by-laws, minutes of members' meetings, debt obligation register and the registers of directors and officers. Only members have access to the list of members and only if they submit a statutory declaration stating the purpose for which the information is being requested and that the information will only be used for permitted purposes. Those purposes are:
- an effort to influence the voting of members;
- requisitioning a meeting of members; or
- any other matter relating to the affairs of the corporation.Footnote 14
Under the CCA any person who submits a statutory declaration, not just members, can obtain access to the list of members.Footnote 15 Both the NFP Act and the CCA provide explicit penalties for misuse of the information about members.Footnote 16
The NFP Act makes use of a corporate seal optional although use of such a seal is mandatory under the CCA.
Part 5 – Corporate finance
The NFP Act allows the directors to borrow money or issue debt obligations without having to get special permission from the members or adding special wording to the corporation's by-laws.
Part 5 also allows for the setting and collecting of annual dues or contributions (e.g., a specific number of volunteer hours with the organization). It explicitly states that property owned by the corporation is not held in trust and that directors are not trustees unless a transfer includes an explicit trust provision for either the corporation or the directors.
Further, Part 5 provides that no part of a corporation's property or profit can be distributed to members, directors or officers "except in furtherance of [the corporation's] activities or as otherwise permitted by the Act."Footnote 17 For example, this allows directors to be paid for their services as directors if the corporation so chooses and to be reimbursed for expenses incurred on the corporation's behalf. There have been some concerns that the CCA requirement for "no pecuniary gain to members" precludes directors being paid or reimbursed.
Part 5 also explicitly states that members are not liable for any liability of the corporation except as provided by the Act. An example of such an exception is found in subsection 239(5) of the NFP Act, where a member who receives property of the corporation on dissolution is made liable to satisfy a court order to the extent of the amount received.
Part 6 – Debt obligations, certificates, registers and transfers
Part 6 allows for the issuance of debt obligations and is based on the CBCA and the Canada Cooperatives Act. While the CCA has some provisions concerning securities, in 1970 those provisions were considered inadequate. As a result, a new regime for securities was incorporated into the CBCA at that time. Unfortunately the parts of CCA securities regime that applied to corporations under Part II of the CCA (e.g., sections 68 to 73 of the CCA) are still inadequate almost 40 years later.
It is expected that the use of Part 6 will be fairly uncommon, although there may be situations where a not-for-profit corporation requires a substantial amount of money to fulfil its purpose (e.g., undertaking a large capital project such as erecting a building). For those few situations, provisions for the issue, register and transfer of debt obligations will be required.
Part 7 – Trust indentures
Like Part 6, Part 7 issues will arise very rarely. However, there may be situations where a corporation decides to issue a debenture or debt obligation under a trust indenture.
Part 8 – Receivers and receiver-managers
Part 8 clarifies the position of a receiver or receiver-manager whether appointed by a court or under an instrument. The provisions are based on the equivalent provisions currently in the CBCA. The only provision in the CCA concerning a receiver or receiver-manager that is applicable to a not-for-profit corporation is for notice of the appointment to be given to the Minister.Footnote 18
Part 9 – Directors and officers
One of the deficiencies of the CCA is its lack of provisions addressing the liability of directors and the balance between the rights and responsibilities of directors and members. Also, the CCA requires the by-lawsFootnote 19 of the corporation to set out:
- the mode of holding directors' meetings;
- the provision for quorum at directors' meetings; and
- the methods of appointing and removing directors and officers, and their respective powers and remuneration.
The NFP Act tries to address these perceived deficiencies by creating standard provisions concerning:
- the qualifications of directors;
- the election and removal of directors by members; and
- the holding of directors' meetings.
In the CCA, there is some consistency in these provisions because the consistency has been provided using the Minister's approval of by-laws and by-laws amendments. However, this is not the best way to ensure that corporations have access to a set of balanced and effective provisions related to directors and officers.
Part 9 also sets a default quorum for directors' meeting of "a majority of the number of directors or minimum number of directors required by the articles"Footnote 20. This quorum can be changed by the articles or by-laws. The NFP Act also allows decisions of the directors to be made by consensus.
The CCA does not spell out the duties and liabilities of the directors and provides for only a very limited due diligence defence.Footnote 21 To correct these deficiencies, Part 9 of the NFP Act explicitly sets out the responsibilities and duties of directors and provides for a full due diligence defence. These provisions are based on the equivalent provisions of the CBCA.
The directors are responsible for the management of the corporationFootnote 22 and have the duty to:
- act honestly and in good faith with a view to the best interests of the corporation (paragraph 148(1)(a) of the NFP Act);
- exercise the care, diligence and skill of a reasonably prudent person; (paragraph 148(1)(b) of the NFP Act)
- disclose any conflict of interest (section 141 of the NFP Act); and
- comply with the Act, articles, by-laws and any unanimous members agreements (subsection 148(2) of the NFP Act).
The due diligence defence is set out in section 149 of the NFP Act and states that a director is not liable "if the director exercised the care, diligence and skill that a reasonably prudent person would have exercised in comparable circumstances". A similar defence is available to officers of the corporation under section 150 of the NFP Act since subsection 148(1) gives officers the same duties as the directors. The NFP Act also explicitly allows for the advancement of defence costs and makes directors' and officers' liability insurance permissible expenses.
One other area where there is a change respecting directors concerns notification to the Director appointed under the Act of changes in directors and to their addresses for service. Under the CCA, the list of directors and their addresses is collected once a year on the annual summary.Footnote 23 As with the head office address, there are frequent complaints that the list of directors is out of date. For example, if the annual summary provides information as of March 31 each year and the annual meeting elects new directors on April 30 of each year, the list of directors would be out of date for at least 11 months of each year. The NFP Act requires corporations to inform the Director of:
- a change in directors within 15 days of that change; or
- a change in a director's address within 15 days of the director notifying the corporation of the change of address.
This will ensure that the public database maintained by the Director is accurate and up to date.
Part 10 – By-laws and members
The CCA requires a corporation's by-laws and all by-law amendments to be approved by the Minister. Also, the provisions of the CCA are not clear on whether members are permitted to propose by-law changes. The NFP Act provides a standard procedure for proposing and approving by-law changes that does not include the Director reviewing or approving those by-laws or amendments. However, as requested by some members of the legal community, the corporation has the obligation to send copies of the by-laws and any amendments or repeals to the Director.
The procedures in the NFP Act for approving by-laws vary depending on whether the by-law or amendment is or is not a fundamental change that is governed by subsection 197(1) of the NFP Act. For an ordinary by-law or by-law amendment, the directors may pass a resolution to approve, amend or repeal the by-law and the change will take effect immediately. The directors must then submit the change in the by-laws to the members for their approval at the next members' meeting. Member approval will be by ordinary resolution (i.e., a resolution passed by a majority of the votes cast on that resolution). If the directors do not submit the by-law change to the members at the next members' meeting, the change ceases to be effective. The members may approve the change as is, amend the change or reject it.Footnote 24
A by-law or amendment that is a fundamental change must follow the same procedure as changes to the articles (e.g., sections 197 to 199 of the NFP Act). Fundamental changes in by-laws include changes to:
- the conditions for membership;
- the rights and conditions on any class or group of members;
- the method of giving notice of a members' meeting; and
- the manner of voting at a members' meeting.
These provisions address the concern that the directors could use an amendment to the by-laws to exclude a group of dissident members from a members' meeting or remove their rights as members.
These fundamental changes to the by-laws are not effective when the directors approve the change; they are only effective when approved by the members. Member approval will be by special resolution (i.e., a resolution passed by a majority of not less than two thirds of the votes cast on that resolution) and may require a class vote.Footnote 25
For both ordinary and fundamental changes to the by-laws, members may propose changes by following the normal procedure for a member proposal in section 163 of the NFP Act.Footnote 26 Also, once the members have approved the change, with or without further changes, or the repeal, the corporation has 12 months to send a copy to the Director.Footnote 27
Part 10 also covers the conditions and other aspects of membership, which are part of the by-laws under subsection 154(2) of the CCA. For example, the NFP Act has provisions for:
- granting and terminating membership, including the power to discipline members;
- holding meetings of members, including setting record dates for who may attend a meeting;
- allowing members to make proposals to be considered at a meeting;
- a default quorum for members' meetingsFootnote 28 (i.e., a majority of the members entitled to vote at the meeting) that can be changed by the articles or by-laws; and
- the members to vote by consensus if they want to.
One of the unique provisions in this Part is the introduction of rules for providing members with notice of a members' meeting. Subsection 162(1) requires the by-laws to set out the method or methods to be used to provide members with notices of meetings. The options for the method, along with certain requirements for each option, are set out in the regulations. The options are:
- mail, courier or personal delivery;
- telephonic, electronic or other communication facility;
- affixing the notice to a notice board on which information respecting the corporation's activities is regularly posted and that is located where the members usually attend; and
- in the case of a corporation that has more than 250 members, by publication in a newsletter of the corporation or in a public newspaper.
While it is mandatory to select a method for giving notice of members' meetings in the by-laws, the NFP Act provides a default of sendingFootnote 29 the notice to every member entitled to vote if the by-laws do not select any method, or select a method that is not within the options set out in the regulations. Section 162 provides flexibility by authorizing the Director to allow a corporation to use some other method of notice, provided that the Director "reasonably believes that the members will not be prejudiced."Footnote 30 This permits the Director to address unusual situations, such as the chosen method being very difficult or impossible, or a novel method has been proposed.
Another unique feature of Part 10 concerns absentee voting. Section 171 is similar to section 162 in that the by-laws may prescribe a manner of absentee voting chosen from a range of options in the regulations, and that the Director is authorized to allow a corporation to use some other manner "if the Director reasonably believes that the members and the corporation will not be prejudiced."Footnote 31 The NFP Act does not provide for a default manner of absentee voting since the corporation is not required to allow absentee voting. This differs from the mandatory requirement to provide all members entitled to vote at a meeting with notice of that meeting. The following options for the manner of absentee voting, along with certain requirements for each option, are set out in the regulations:
- voting by proxy;
- voting by mailed-in ballot; and
- voting by means of a telephonic, electronic or other communication facility.
Part 11 – Financial disclosure
Parts 11 and 12 of the NFP Act are based on Part XIV of the CBCA. The provisions have been divided to separate the provisions for the preparation and disclosure of financial statements from the provisions concerning the public accountant's review of the financial statements.
Part 11 provides for the production of annual financial statements prepared according to the Canadian generally accepted accounting principles as set out in the Handbook of the Canadian Institute of Chartered Accountants. Copies of these financial statements must be provided to members each year in advance of the annual meeting of members and, if the corporation is a soliciting corporation, must also be sent to the Director. While Part II of the CCA requires the auditor to conduct a review of the annual financial statementsFootnote 32 for non-share corporations, it is silent on the preparation of annual financial statements and their distribution to members.Footnote 33
Section 173 of the NFP Act gives the Director broad discretion to exempt the corporation from any provision of Part 11 "if the Director reasonably believes that the detriment that may be caused to the corporation by the requirement outweighs its benefit to the members or, in the case of a soliciting corporation, the public."
Part 12 – Public accountant
Part 12 deals with the public accountant and replaces sections 130 to 132 of the CCA. It covers both the qualification and appointment of the public accountant as well as the public accountant's responsibilities to review the financial statements. It also includes a provision for an optional audit committee, if a corporation so chooses.
Although the provisions for the qualification and appointment of the public accountant in the NFP Act are based on the equivalent provisions of the CBCA, there is a difference in the qualifications required for the public accountant. In subsection 180(1) of the NFP Act, the public accountant must be both a member in good standing of the provincial accounting association (i.e., a member of the provincial Chartered Accountants of Canada, Certified General Accountants Association of Canada or the Certified Management Accountants of Canada) and meet any qualifications set by a province for financial reviews or audits in that province.
Therefore, if a province requires that a public accountant must have a license in order to conduct a review engagement or audit in the province, the public accountant has to have that license to be qualified. However, if the public accountant only does review engagements and a province only requires a license to conduct audits but not review engagements, the public accountant has to be a member of the provincial accounting association to be qualified, but is not required to be licensed by the province. The scheme in subsection 180(1) ensures that the public accountant meets any provincial requirements for conducting reviews of financial statements.
The financial review provisions of Part 12 require a corporation to determine into which of five categories it fits. The criteria for the categories are based on the corporation's gross annual revenues, and on whether or not it is a soliciting corporation. Each category can have up to three options for its financial review, although there is a default or mandatory option for each. The three possible options are: no review; a review engagement; or an audit. In doing a financial review, the public accountant is required to use the Canadian generally accepted auditing standards set out in the Handbook of the Canadian Institute of Chartered Accountants.
|Type of Corporation
|Gross Annual Revenues
|May Dispense with Public Accountant
|less than $50K
|option for review
|default for review
|option for review
|between $50 K and $250K
|option for review
|default for review
|more than $250K
|less than $1M
|option for review
|default for review
|option for review
|more than $1M
Part 13 – Fundamental change
The CCA provides little authority for fundamental structural changes to not-for-profit corporations (e.g., amalgamations, continuances or reorganizations) other than provisions for the amendment of a corporation's letters patent. Most of Part 13 of the NFP Act is based on the equivalent provisions of the CBCA. Part 13 includes provisions for amending a corporation's articles and, in certain cases, its by-laws.Footnote 34 Part 13 also provides a corporation with the option of:
- amalgamating with another corporation,
- continuing into or out of the statute, and
- reorganizing through a court order or an arrangement.
While it is anticipated that these provisions will not be used extensively, they will ensure that a corporation that wants to amalgamate, for example, with another corporation has the authority to do so.
Part 14 – Liquidation and dissolution
Liquidation, dissolution and revival are other areas in which the CCA has inadequate provisions. The CCA does not have a liquidation procedure for not-for-profit corporations. It simply allows a corporation that has no assets and no debts, liabilities or other obligations to surrender its CharterFootnote 35 or, if a corporation has assets or debts, leaves the liquidation and dissolution procedure to the Winding-up and Restructuring Act. There is no revival provision in the CCA.
Part 12 (once again based on the equivalent provisions of the CBCA) provides for:
- the revival of a dissolved corporation (section 219 of the NFP Act);
- the voluntary dissolution of a corporation (sections 220 and 221 of the NFP Act);
- the administrative dissolution of a corporation by the Director, if the corporation is not in compliance with the Act (section 222 of the NFP Act); and
- court supervised liquidation and dissolution (sections 223 to 233 of the NFP Act).
Part 12 includes provisions for the disposition of the property of the corporation on dissolution that are different from those in the CBCA. For example, if any property is given to a corporation on the condition that it is returned on dissolution, that property is to be returned to the person who gave it.Footnote 36
A corporation that is a registered charity, a soliciting corporation or a corporation that meets the requirements of paragraph 235(1)(c) of the NFP Act is required to distribute its property to another "qualified donee" as defined by subsection 248(1) of the Income Tax Act. The selection of the "qualified donee" is to be set out in the articles of the corporation. However, if the statement on the distribution of assets on dissolution in the articles does not meet the requirements of section 235 of the NFP Act, a court must be asked to approve the distribution of assets.
A corporation that does not meet the requirements of subsection 235(1) (e.g., it is not a registered charity or a soliciting corporation), will distribute its property based on the statement in the articles for distribution of assets on dissolution. If the articles do not provide for the distribution of assets on dissolution, then the remaining property is to be divided "into as many equal shares as there are memberships in the corporation and distributed at the rate of one share to the holder of each membership."Footnote 37
Part 15 - Investigation
The CCA investigation provisions for not-for-profit corporations are simply a cross-reference to the relevant provisions of the CBCA.Footnote 38 Part 15 is based on those same provisions of the CBCA. Therefore, there is be no change in the investigation provisions that apply to a not-for-profit corporation under the NFP Act, except that the provisions have now been written to specifically apply to not-for-profit corporations (e.g., the provisions refer to "members", not "shareholders").
Part 16 – Remedies, offences and punishment
In the CCA, remedies and punishments available to members, the Minister and the general public for dealing with defaults and offences are very limited, and do not include the usual modern corporate remedies. Many of the complaints received by Corporations Canada about not-for-profit corporations consist of disputes between members and/or directors about how the corporation should be run. Frequently, these complaints involve disputes about whether the provisions of the by-laws are being followed and who are the members or directors of a corporation. The new provisions in Part 16 attempt to provide directors, members, the Director and the general public with remedies that can be used to settle such disputes.
Part 16 of the NFP Act introduces the oppression remedy and the derivative action to federal not-for-profit corporate law. The provisions are based on the equivalent provisions of the CBCA. For the purposes of this part, "complainant" can include present and former members, directors and officers, the Director and any person who is granted leave by a court to commence an action. These remedies allow access to the courts if the parties to the dispute are unable to reach a settlement on their own.
Part 16 introduces one unique exception for religious corporations – the faith-based defence. This defence precludes a court from issuing an order under the oppression remedy or the derivative action if the court decides that the corporation meets three criteria:
- the corporation is a religious corporation;
- the decision being challenged is based on a tenet of faith held by the members of the corporation; and
- it was reasonable to base the decision on a tenet of faith, having regard to the activities of the corporation.Footnote 39
The NFP Act does not define "religious corporation" or "tenet of faith", but leaves it to the courts to determine if a particular corporation is or is not a "religious corporation" and whether or not a decision is based on a "tenet of faith". The objective of this defence is to distinguish between commercial decisions and religious decisions, since corporate law should not be used to change religious tenets.
Part 16 of the NFP Act also includes provisions for:
- the Director to ask a court for directions;
- appeals of certain decisions of the Director (e.g., to give or refuse a name, to issue or refuse an applicationFootnote 40); and
- compliance or restraining orders against corporations and directors.
The NFP Act puts all the offences in one section, namely section 262, as opposed to the CBCA where the offences are scattered throughout the Act. Section 262 includes general offences for contravention of the Act or regulations for both the corporation and its directors and officers. There is an offence for any person who makes, or assists in the making, of a false or misleading statement in any document required by the Act to be sent to the Director or to any other person. There is a specific offence for the misuse of information obtained from the register of members or of debt obligation holders. There is also a due diligence defence available for any person accused of an offence in section 262.
Part 17 – Documents in electronic or other form
Because the existing CCA not-for-profit corporation provisions were written in 1917, it is understandable that it lacks any provisions for the electronic communication of material. There are two different situations for electronic communication provided for in the act: communication to and from the Director; and communications between the corporation and its members or between members.
Communication to and from the Director is dealt with in Part 18 of the NFP Act where the Director is given the authority to establish all requirements for forms, notices and other documents sent to or issued by the Director.Footnote 41 The possibility of being able to communicate with the Director electronically should assist both the corporation and the Director in reducing the regulatory burden of the NFP Act.
Part 17 is aimed at communication between the corporation and its members or between members. It is based on Part XX.1 of the CBCA and Part 21.1 of the Canada Cooperatives Act, both of which were added to those statutes in 2001. Provisions for electronic meetings and electronic voting are in the sections of the NFP Act that address the holding of meetingsFootnote 42 and voting at meetings.Footnote 43
Part 17 does not make the electronic communication of material mandatory. It simply provides an option that a corporation can, if it wishes, communicate electronically with its members. If the requirements of the Part are respected (e.g., consent is obtained), an electronic document will fulfil any requirement in the act for a paper document. Part 17 has been written to avoid references to any specific forms of electronic technology. This will allow it to be adapted to any future changes in technology.
Part 18 - General
Part 18 contains provisions of a general administrative nature. The first section deals with notices, certificates and other documents, while the second concerns the Director and regulatory authority.
With respect to notices, certificates and other documents, Part 18 contains provisions about:
- sending documents to members or directors;
- sending or serving documents on the corporation;
- certificates issued by the corporation to certify some fact; and
- certificates issued by the Director (e.g., a certificate of incorporation or amendment).
The choice of which representative of the corporation is required to sign forms or notices sent to the Director is left to the Director's discretion.Footnote 44 This Part maintains the requirement on corporations to file an annual return with the Director.Footnote 45 It also provides explicit authority for public access to the corporate records maintained by the Director.Footnote 46
With respect to the Director, Part 18 creates the position of the Director and authorizes the Director to:
- set the content and signature of forms and notices sent to the Director;
- maintain records on each corporation;
- correct or cancel articles, certificates or other documents;
- issue certificates of existence and compliance; and
- make certain information available in a publication generally available to the public.
The final provision of Part 18 is the authority for the Governor in Council to make regulations.
Part 19 – Special Act Bodies Corporate without Share Capital
Under the CCA, Part III of the Act applied to corporations:
- without share capital;
- incorporated by Special Act of the Parliament of CanadaFootnote 47;
- carried on, without pecuniary gain to its members; and
- with objects of a national, patriotic, religious, philanthropic, charitable, scientific, artistic, social, professional or sporting character, or the like objects.
The NFP Act replaced Part III of the CCA with Part 19 that applies to corporations:
- without share capital;
- incorporated by Special Act of the Parliament of Canada and not continued under any other Act.
There is an exception for departmental and parent Crown corporations as defined in section 2 of the Financial Administration Act. The references to "without pecuniary gain" and the list of objects from the criteria for who is affected by Part III of the CCA have been removed, as they have been for the rest of the NFP Act.
As with Part III of the CCA, Part 19:
- requires affected corporations to hold an annual meeting;
- requires affected corporations to file an annual summary with the government, with consequences for not filing;
- allows affected corporations to continue into the rest of the Act as a not-for-profit corporation; and
- provides for the liquidation and dissolution of the corporation.
Part 19 adds that affected corporations have all the powers of a natural person that are addressed in Part 3 of the act and that a corporation can change its name without resorting to a Private Member's Bill (section 296).
When the NFP Act came into force, Part III of the CCA was repealed and Part 19 came into force. There was no need for affected corporations to complete any transition. They were automatically subject to the new Part 19. There is a new annual summary form specifically for Part 19 corporations.
As the history of the federal not-for-profit statute and the attempts to replace Part II of the CCA demonstrates, changing the statute can be extremely difficult and can take a very long time. However, since regulations are generally much easier to change, this permits detailed provisions to be updated as required. Therefore, the philosophy in drafting the NFP Act was to put the principles and provisions that are unlikely to change into the statute and put the details in the regulations. As a result, the NFP Act has many references to things being "prescribed" or set out in the regulations (e.g., time periods, amounts, etc). This means that the regulations and the statute must be read together in order to fully understand many provisions. For example, the options for the method of giving notice of meetings and for the manner of absentee voting are provided in the regulations.
The regulations also establish the fees to be charged by the Director for providing certain services.
Bill C-4 provides a transition mechanism to continue (transfer) corporations from Part II of the CCA to the NFP Act. Under the CCA, corporations have letters patent and by-laws that have been approved by the Minister. Under the NFP Act, corporations submit articles and a certificate is issued by the Director. As part of the transition each corporation is required to write and submit articles to the Director that replace the letters patent. Further, the minimum requirements that must be set out in the by-laws are very different under the CCA and the NFP Act, so each corporation is required to conduct a by-law review and amend its by-laws accordingly. Unlike other corporate statutes, the NFP Act provides default provisions for any mandatory by-law requirement (e.g., quorum and method of giving notice of members' meetings) in case the issue is not properly addressed in the by-laws. The Director does not review or approve by-laws as part of the transition process.
Corporations have three years from the coming into force of the Act (i.e., October 17, 2011) to complete the transition to that Act.Footnote 48 If a corporation does not complete the transition within the three years (i.e., before October 17, 2014), the Director will dissolve the corporation.Footnote 49 There is no fee for this transition if it is completed within the prescribed three years.Footnote 50 If a corporation is dissolved under subsection 297(4), it is eligible for revival under the Act, but there is a fee for such revival. Once all not-for-profit corporations have either continued to the NFP Act or have been dissolved, Part II of the CCA will be repealed.
To assist corporations with the continuance required for transition, the Director has released:
- a transition guide,
- model articles of continuance, and
- model by-laws.
The Director is releasing policies or guides on most of the applications and procedures that involve not-for-profit corporations and the Director. This has been the practice of the Director under the other statutes that are administered by Corporations Canada (e.g., the CBCA and the Canada Cooperatives Act).
With the passage of Bill C-4, the long history of the attempts to replace Part II of the CCA with a new not-for-profit corporations statute reached a satisfactory conclusion. With the coming into force of the NFP Act on October, 17, 2011, the implementation of the statute is mostly complete. However, it should also be recognized that, as circumstances change, there will be a continuing need to review and, where required, reform the Act and its regulations.
Since a perfect corporate governance law will never be possible, the goal must be to create an evergreen statute that will continue to meet the needs of a changing marketplace for many years to come through a process of constant review and renewal. The NFP Act takes us one step closer to that goal.