Law Times

Law Times • augusT 10/17, 2009 FOCUS PAGE 11 Canada Not-for-profit Corporations Act gets royal assent A BY GLENN KAUTH Law Times fter several attempts to revamp laws governing non-profit organizations, new federal legislation finally re- ceived royal assent in June. "This is a good development, certainly better than what we had. It's not without issues, but prob- ably for the majority of corpora- tions, this will be seen as a posi- tive and welcome development," says Terry Carter, managing part- ner at Carters Professional Corp., based out of Orangeville. Bill C-4, the Canada Not-for- profit Corporations Act, follows a number of previously proposed laws that died on the order paper during Canada's recent string of minority governments. It replaces the Canada Corporations Act, a law governing federally incorpo- rated entities that had remained virtually unchanged since 1917. Sylvie Lalonde, an associate with Borden Ladner Gervais LLP in Ottawa, says the old act was out- dated and for years came under criticism by people involved in the non-profit sector. "One of the main criticisms of the cur- rent legislation is it essentially says nothing," says Lalonde, not- ing that as a result, lawyers often have to rely on case law in order to advise clients rather than refer to the statute itself. Among the changes intro- duced by Bill C-4 is a provi- sion allowing organizations to incorporate by signing letters of incorporation rather than by letters patent. At the same time, they'll now be able to do so as of right rather than at the discretion of Industry Canada as long as they meet the ad- ministrative requirements, ac- cording to Lalonde. As well, the new act re- places what Lalonde says was a subjective standard of care for directors of organizations with an objective one. The change means directors must act honestly and in good faith and use the care, diligence, and skill that a reasonably prudent person would exercise in similar circumstances. "It's an objective standard that is the same that applies to direc- tors of business corporations," says Lalonde, noting that pre- viously, rules held profession- als such as lawyers to a higher standard than it held others without such formal credentials. The result was sometimes a disincentive for people to take positions on boards, an issue the new act should resolve. "One of the benefits is it may attract qualified people to sit on the board," Lalonde says. Carter, too, adds that while the law introduces a due diligence de- fence for directors who find them- selves in legal trouble, a downside is that it doesn't provide for statutory protection from liability, some- thing other jurisdictions allow for in particular circumstances. participate in meetings elec- tronically, according to La- londe. "I think members will be pleased because it increases their role and also the account- ability of directors," she says. The changes should also be good for non-profit groups, she adds. "Organizations that have an active membership are going to like this." Besides rules governing di- Sylvie Lalonde says the old act was outdated and for years came under criticism by people involved in the non-profit sector. In addition, the act sets out new rules on the election and appointment of directors. While the current act has no restric- tions on that process, Lalonde says the new legislation stipulates that members have the right to elect directors at the organiza- tion's annual general meeting. It also limits terms of office to four years while providing members with a host of new rights and powers. They include the ability to access corporate records and membership lists, the right to submit proposals at meetings to change bylaws, and the power to rectors and members, Bill C-4 sets out differing standards for organizations based on their size and what they do. It establishes two classes of corporations, for example. Designated corpora- tions include both soliciting or- ganizations — those that receive less than $50,000 in annual revenues from public sources — and non-soliciting organi- zations that don't raise money from public sources but that have revenues not exceeding $1 million. They'll face a differ- ent, and lower, standard than all other organizations. In terms of financial duties, designated cor- porations won't necessarily have to hire a public accountant to do an audit and instead will have the option of doing a review engage- ment or an audit engagement. Non-designated corporations, meanwhile, must appoint a pub- lic accountant. A final major change in Bill C-4 is the nixing of a require- ment to submit bylaw and bylaw amendments to Industry Cana- da for approval. Now, bylaws become effective once the board adopts them subject to approval at the next members' meeting. That provision is particularly welcome, according to Lalonde. Overall, Carter says that while the bill is generally good, some lawyers are leery about the en- hancements to members' rights that may worry directors of or- ganizations. At the same time, he notes that the fact that the government largely modelled the new act on the Canada Business Corporations Act, governing for-profit entities was perhaps inappropriate given the different issues the two types of organiza- tions have. Nevertheless, officials haven't yet proclaimed Bill C-4 into force, and even once that happens organizations will have three years in order to apply for a certificate of continuance al- lowing them to comply with the new regime. In the meantime, Carter says they should begin thinking about the implications of the act for them. Some organiza- tions, for example, might want to consider whether they want to remain registered federally as opposed to provincially. But even on that question, the situ- ation is likely to change because, as Carter points out, the Ontario government has been working on revamping its own laws gov- erning non-profit organizations. "I think Ontario will come up with a different approach," he says. LT Travelers Guarantee Company of Canada and Do Process Software Ltd. are pleased to provide another valuable link in state of the art technology by empowering lawyers to apply on-line and receive electronically the following surety bonds: Administration Bonds Guardianship Bonds Lost Instrument Bonds Waiver of Probate Bonds If you require a surety bond, please visit www.lawyercentric.com for instructions and your on-line application forms. 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