NFP Act transition… only six months left… are you on track?

Published April 14, 2014

On October 17^th 2011 the NFP Act (also known as the CNCA) came into force and required that every federally-incorporated not-for-profit organization transition to compliance with the new law – or face dissolution. With only six months to go, Carters (Canada's leading charity law firm) is reporting that of the approximately 17000 affected organizations, only 2900 have successfully transitioned.

What are the statistics for sport? Well, of the 59 organizations that are recognized as National Sport Organizations (NSOs) and supported, in part, by Sport Canada, exactly 24 have continued under the NFP Act. We are working with 21 additional NSOs that are almost finished and are waiting on an upcoming meeting – but we are unaware of the progress of most of the other NSOs. We are concerned about those 15 outstanding NSOs that may be facing the pressure to transition and might not make the six month deadline. Most Multi-Sport Organizations (MSOs) are following the same timeline – but there are definitely some organizations that appear to have slipped through the cracks!

We searched through the database and came up with over 75 active local clubs and leagues that are, for one reason or another (accidentally or not), incorporated federally. These organizations may be facing dissolution and not even realize it!

Continuing Quickly

Even with only six months to go, there is still time for organizations to transition to compliance with the new legislation. But the process needs to be accelerated and there is precious little time for member engagement. The first step is to develop a new set of compliant bylaws, either by amending the existing bylaws or by adopting a brand new set of bylaws. Then, a members’ meeting must be called in a manner and with the appropriate notice period specified in the old bylaws. It is very likely that this process will need to be done in one step (we discussed the two-step process in a previous blogpost) and that probably means that all individual members must be alerted to this meeting and given a vote on the new bylaws.

The meeting to pass the new bylaws must end with… the passing of the new bylaws! There simply is not enough time remaining to go through the process again, bring the members back together, and try to squeeze in the transition. If members disagree with any of the main changes required by the new Act (such as membership restructuring and board composition) then there needs to be an expert at the meeting to inform members of the absolute necessity of the transition. But, the process must also be correct. The organization cannot ask the members to pass non-compliant or otherwise improper bylaws that end up crippling the organization.

In addition to the new compliant bylaws, the articles of continuance (required by the government) must also be passed at the same meeting. Other, smaller and non-vital amendments can still be made to the bylaws provided that the main requirements of the NFP Act are met and the bylaws comply with the new legislation. Members should also remember that passing new bylaws does not make the bylaws permanent. Amendments can still be made later once the organization has continued under the NFP Act.

Articles

A quick sidebar about the Articles of Continuance. The articles describe the corporation’s purpose, number of directors, classes of membership, and a few other important details about your organization. Officially transitioning to compliance under the NFP Act requires the submission of the compliant bylaws, the articles, and another basic form listing the directors. It is possible to file only the articles – and govern the organization in accordance with the Act – but this tactic is tricky, complicated, and not recommended for sport organizations.

Dissolution

Carters also reported that Corporations Canada will begin issuing notices of dissolution on October 17^th 2014 first to those organizations that have not filed anything (by-laws, supplementary letters patents, etc.) with the government in the last five years. These would be the organizations that the government considers to be the least active. However, even if your organization receives a letter of dissolution you will still have 120 days to respond to it and you may still be able to transition within those 120 days. Finally, even if your organization is dissolved, there are mechanisms in place for the corporation to be ‘revived’ – though needing to revive your organization because it was dissolved could be costly and embarrassing.

We Can Help

It would be unfortunate if any active organization is dissolved because the organization failed to act. We have been working with over 70 corporations and assisting their transition. We have hosted long-term governance reviews with larger organizations and we are able to help smaller organizations inexpensively and expertly. We have also been approached by organizations to review the work that has been done internally and we have identified any issues with the process or amendments that are not in compliance with the Act. We would be pleased to assist your organization and help you complete this process. KRL@sportlaw.ca