• Transition to and Compliance With the New Canada Not-for-profit Corporations Act
  • March 28, 2011 | Author: Pierre-Paul Henrie
  • Law Firm: Norton Rose Canada LLP - Ottawa Office
    The new Canada Not-for-profit Corporations Act (the "Act"), which replaces the Canada Corporations Act (the "CCA"), is expected to come fully into force within the next year. There will then be a three-year transition period for not-for-profit corporations ("NFPs") incorporated under Part II of the CCA to apply for continuance under the Act. Accordingly, NFPs likely have until 2015 to comply with the Act.  Failure to comply will result in an NFP's dissolution.

    This bulletin outlines the transition steps an NFP existing under Part II of the CCA must take to comply with the Act. The Act has been created to reflect modern standards regarding corporate operations and governance and is largely modelled upon the Canada Business Corporations Act.

    For some NFPs, current governance practices may need to be changed in order to comply, while for others the legislative change may provide an occasion to reflect on existing governance practices and procedures and make revisions to better reflect the objectives of the NFP's board and members.

    Draft regulations of the Act were published in the Canada Gazette on February 26, 2011, and are open for comment.

    In order to continue under the Act, an NFP must demonstrate that its existing corporate governance provisions comply with the requirements of the Act. This process will require an NFP to apply for a certificate of continuance by filing articles of continuance under the Act, which will replace an NFP's current letters patent (as amended by any applicable supplemental letters patent, the "Letters Patent"). There is no fee associated with such filing. The NFP's board of directors will need to pass a resolution authorizing the application.

    Under the current CCA, an NFP has only those powers that are set out in Part II of the CCA as limited by its Letters Patent. Under the Act, an NFP will have the capacity, rights, powers and privileges of a natural person except as may be limited by its articles of continuance.

    The following information must be set out in an NFP's articles of continuance:

    a. the name of the NFP;
    b. the province where the NFP's registered office is to be situated;
    c. the classes, or regional or other groups, of members that the NFP is authorized to establish and, if there are two or more classes or groups, any voting rights attaching to those classes or groups;
    d. the number of directors or the minimum and maximum number of directors of the NFP;
    e. any restriction on the activities that the NFP may carry on;
    f. a statement of the purpose of the NFP; and
    g. a statement concerning the distribution of the NFP's property remaining on liquidation.

    Subsection 211(2) of the Act allows an NFP to make any amendments that a corporation incorporated under the Act can make to its articles at the same time as applying for continuance under the Act.

    An NFP will no longer be required to have objects. However, given the charitable registration of most NFPs, it would be prudent to include objects in the articles of continuance so as to remain consistent with the NFP's charitable registration. This can be achieved by including the objects into the appropriate section in the articles. It is expected that the Canada Revenue Agency will issue a policy directive over the next several months clarifying whether it will review articles of continuance of federally incorporated charities and any other requirements relating to the articles of continuance.

    In addition to the articles of continuance, an NFP will be required to file a notice of registered office and a notice of directors with Industry Canada in the forms to be prescribed by Industry Canada within the periods to be stipulated in the Act's regulations.

    Since there is no government review or approval of by-laws required under the Act, it is not necessary to file the by-laws with the articles of continuance. The application for articles of continuance must include an officer's certificate certifying that the members have adopted by-laws that conform to the Act's requirements.

    While the CCA requires that Industry Canada approve NFP by-laws before they come into force, Industry Canada approval will not be required for by-laws under the Act. By-laws will be able to deal with matters such as the conditions of membership and other matters to be decided by the NFP. Where an NFP does not specifically deal with such matters in its by-laws, the statutory defaults under the Act will govern.

    An NFP can maintain its current by-laws provided they meet the Act's minimum requirements. Any appropriate modifications can be passed by the directors and will come into force at the time of such passage and then be ratified by members at their next meeting. Although Industry Canada will no longer approve by-laws, they must be submitted to Industry Canada after members have confirmed or amended them.

    To provide a smooth transition to the Act, it is recommended that an NFP adopt an action plan to review its by-laws in light of the Act and then discuss any changes that may be appropriate.