With 24 National Sport Organizations (NSOs) having transitioned to compliance with the new NFP Act, and more organizations in the process of completing the final steps of transition, now is a good time to review some of the tasks to which an NFP Act-compliant organization should turn its focus.
One of the main components of the NFP Act was to give all member classes voting powers on specific items that would affect the membership class. To reduce potential logistical headaches, most legal advisors (including the Sport Law & Strategy Group) recommended that organizations streamline their membership structure, reduce the number of different membership classes, and eliminate non-voting members. This step effectively changed individual ‘members’ into ‘registered participants’ or ‘registrants’. With the new terminology embedded in the bylaws, it must now be spread through the rest of the organization’s governing documents and entered into the organization’s policies, culture, and lexicon.
First, check your mission, vision, and values to see how these statements refer to both members and individuals. Is your organization’s mandate to support individuals in your sport? If so, ensure that these statements are clear that ‘members’ are (usually) the Provincial/Territorial Sport Organizations (P/TSOs) and the individuals are registered participants.
When passing the new bylaws and articles of continuance, some organizations also passed a resolution clarifying that the old policies that refer to ‘members’ should now be read to include the new terminology of ‘registered participants’. This type of resolution serves to acknowledge that individuals are still under the jurisdiction of the organization while the policies are being revised and officially approved. Here is one example:
Wherever in the organization’s policies there is a reference to “members”, which under the former Bylaws included non-voting members, this will be taken to include “Registered Participants”, and wherever there is a reference to “individual members” this will be taken to refer to “Registered Participants”, until such time as the organization’s policies are revised to conform with the amended Bylaws.
The second main component of the NFP Act was to eliminate ‘ex-officio’ Directors (that is, Directors who became Directors by virtue of their position – like a PSO representative or a Past President) and require that every Director (with few exceptions) be elected by the members. The act of nominating Directors – rather than appointing Directors – may be a new development for some organizations that are accustomed to simply choosing individuals to serve on the Board, or having such individuals automatically come onto the Board because of their position elsewhere. Should organizations have a ‘nominations committee’?
We do recommend that the Board of Directors appoint a nominations committee that is responsible for seeking out and soliciting individuals to run for positions on the Board. There are two common ways to elect Directors. An organization may decide to create positions on the Board (such as President, Vice-President Administration, Vice President Finance, Secretary, etc.) and individuals must run for specific positions. Or an organization may decide to simply elect Directors-at-Large and then the elected Directors would decide amongst themselves which positions they wanted to fill.
Whichever method of electing Directors is decided, there should still be a nominating committee that is responsible for, essentially, being a gatekeeper to the Board of Directors of the organization. The nominations committee should attempt to attract candidates who, among other things:
Some organizations have specific limitations or restrictions for their Board (such as there being a limit on the number of Directors from a specific region, or a prohibition on Directors who are already Directors of a P/TSO) and the nominations committee is responsible for ensuring that the elected Board does not breach these restrictions. [Update: Rowing Canada Aviron's Nominations Committee issued a recruitment ad for Directors]
The existence of a nominations committee does not preclude individuals from approaching the committee and announcing a desire to run for election. However, the nominations committee may determine that the individual does not meet the appropriate standards to have a position on the Board. In certain circumstances and for some organizations, nominations may be permitted from the floor of the Annual Meeting (though the NFP Act is not explicitly clear on this point and we addressed this confusion in a previous blogpost). We do not recommend that nominations for election be permitted from the floor of an Annual Meeting and this reinforces the need for a nominations committee to do a good job soliciting potential directors prior to the meeting.
In July, we wrote a blogpost detailing the record-keeping requirements under the NFP Act. Many organizations were likely already keeping track of these records but the NFP Act makes it a requirement. Organizations must now keep track of the following information:
Some of the above records can be accessed by members and all of the above records may be accessed by Directors. We recommend that organizations designate a specific person (such as a Secretary or Executive Director) to have the task of keeping track of the various records and also making the material easily accessible, as well as available for an eventual transfer to another individual who succeeds into the record-keeping role.
Reporting to the Canada Revenue Agency (CRA)
According to the CRA, there are 120 organizations that have the status of Registered Canadian Amateur Athletic Association (RCAAA). If your federally-incorporated organization is on that list you are required to file your completed transition documents with the Canada Revenue Agency. There is a checklist of the documents that need to be filed:
To comply with both the NFP Act and the changes to the Income Tax Act, many organizations changed their purposes as part of their transition to the new legislation. Also, many organizations had legal objects that were outdated and had not been examined for many years, even decades, and an update was necessary. A change in purposes requires that the organization submit to the CRA a ‘statement of current activities’ showing that the new purposes and activities are still charitable in nature. The activities described in the statement must be charitable and fall within the scope of the organization’s purposes. About the statement of activities, the CRA says:
“Simply submit a detailed statement that fully describes the activities, how your charity intends to carry them out, and how the activities achieve one of the charitable objects of your charity. Include copies of any promotional material such as brochures, newsletters, and posters the charity will use to advertise the activities.”
We are unaware of any organization that has had trouble submitting the statement of activities. Though there does not appear to be a prescribed format for submitting this statement, we so far recommend to list each new purpose and then describe, in a charitable context, the activities that the organization does to meet each purpose. This may seem complicated and requires the organization to review its activities and be careful with the phrasing of the statement.
If your organization needs to submit a statement of activities to the CRA, we can help you review or write the statement, and we can assist with any of the other after-care tasks we have identified here. Please do not hesitate to contact us:
Rachel Corbett RMC@sportlaw.ca
Steve Indig SJI@sportlaw.ca
LeeAnn Cupidio LLC@sportlaw.ca
Kevin Lawrie KRL@sportlaw.ca
Kathy Hare KEH@sportlaw.ca