Is the New Federal Corporations Legislation on Your Radar?

Published June 27, 2011

On June 22, 2011 I had the opportunity to make a presentation on the Canada Not-for Profit Corporations Act (NPCA) [1] at the 1^st National Sport Federation Leadership Summit, organized by the Canadian Olympic Committee in collaboration with Sport Canada. This summit gathered the leaders of all of Canada’s national sport organizations (NSOs), so it was a great opportunity to convey the message that this new legislation should be on your radar, if you are a federal non-profit corporation (all NSOs, all Multi-Sport Organizations (MSOs) and some Canadian Sport Centres (CSCs) are federal corporations).

We have written extensively about the new Act on this web site (check out our Writings under the category of ‘governance’), but here are the main points that I covered in my presentation this week.

The new Act replaces Part II of the Canada Corporations Act, a cumbersome piece of legislation that non-profits have worked with for almost one hundred years. The rationale for the new Act is to strengthen member rights, modernize non-profit governance, allow use of new technologies in governance, and reduce the administrative burden on both corporations and the government.

Strengthening member rights is a main theme of the NPCA. Wayne Gray, in an article presented at a continuing legal education seminar organized jointly by the Ontario Bar Association and the Law Society if Upper Canada, writes “[Under this new legislation] the governance structure must anticipate and be responsive to member concerns. Member participation must be woven into the fabric of the organization”. [Practitioner’s Guide to the New Canada Not-for-Profit Corporations Law, June 7, 2011, page 37]

Some examples of the strengthened members’ rights are: there are greater judicial remedies available to members, classes of members without voting rights must nonetheless be given the right to vote on fundamental changes to the corporation that might affect them, members may remove directors by an ordinary resolution, and where members requisition a meeting, they are entitled to be reimbursed by the directors for their reasonable expenses to do so.

Things that organizations need to think about in order to transition to the new law are the following:

• You will need new articles of incorporation. These will replace your letters patent. They are a statement of your core purpose and some other things (including member classes and voting rights of members). Organizations with RCAAA status will have to have these approved by Canada Revenue Agency first, which could take some time.
• You may need to restructure your board. The new Act does not permit ex-officio directors and places limits on appointed directors. In keeping with the rationale for the new legislation (strengthening member rights), it contemplates that all directors will be elected by members. If your board consists of any appointed directors, or directors who serve on your national board by virtue of holding a position with another organization, then you will have to make some significant changes to your board structure. Over one in three NSOs are in this category, as are numerous MSOs and Canadian Sport Centres.
• You will likely have to revise your membership structure. The requirement to give non-voting members voting rights has the potential to create an unworkable situation for many NSOs and MSOs. We will have to rethink our language (perhaps we should strive for a very narrow scope of members and everyone else is something else, like “participants”) but sport organizations will also need to think about legal jurisdiction. A sport organization wants to keep jurisdiction over its individual members, but does not want every individual member to exercise a vote at a meeting of members when the corporation is considering fundamental changes. Some sort of balance will have to be achieved between these two goals.

In closing, I stressed to the sport leaders in Ottawa that:

• The changes they will need to make will be significant. These are legal issues that go to the heart of your sport organization’s business.
• This is an opportunity – to think about your purpose, your members and your board of directors.
• Although the law has not yet taken effect, sport organizations should start thinking now about how to make the desired changes. While all affected organizations will have to make some changes, some affected organizations will have to make big changes. The process needs to start soon. Better to be in control of your own destiny, then to run out of time and have to default to the provisions of the Act.

For more information, please contact any of us at the Sport Law & Strategy Group. As well, Sport Canada is planning to take a coordinated approach to assist NSOs, MSOs and any CSCs in their transition under the new Act. Your Sport Canada Program Officer can provide you with more information.

Rachel Corbett
rmc@sportlaw.ca

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[1] Note that some people also refer to the Act as the CNCA, for Canadian Not-for-Profit Corporations Act.