Published January 26, 2018
The Ontario Not-for-profit Corporations Act (“ONCA”) has been stuck in legislative limbo since 2010 – but there have been recent developments that affect every Ontario not-for-profit corporation.
In November 2017 the Cutting Unnecessary Red Tape Act, 2017 was passed by the Ontario legislature. The Act amends a number of pieces of legislation including the yet-to-be-passed ONCA and the currently-active Ontario Corporations Act. Since the Cutting Unnecessary Red Tape Act has made changes to the Corporations Act (the law under which most Ontario not-for-profit organizations are incorporated) nearly every Ontario sport organization has been affected.
This blogpost reviews the amendments to the Corporations Act, interprets the changes to the upcoming ONCA, and provides organizations with suggestions for what they can do right now to comply with the Cutting Unnecessary Red Tape Act and to prepare for the ONCA.
The Corporations Act is the existing legislation under which most not-for-profit Ontario sport organizations are incorporated. The Cutting Unnecessary Red Tape Act amends the Corporations Act in the following ways, and these changes are now officially in effect:
- Organizations now have the formal ability to file, keep, and search documents in electronic format. This amendment aligns Ontario with other jurisdictions such that organizations will soon be able to submit and access their governing documents (e.g., Articles and Bylaws) electronically. Organizations will also be able to complete the ONCA transition process online. A similar streamlined process exists in BC and that province is currently completing its own transition to new not-for-profit incorporation legislation.
- Notice for meetings of the Members can be formally given “in writing” which now officially includes notice by electronic means. Many organizations were previously providing notice of meetings by electronic methods, although exclusively giving notice in this manner was not expressly allowed.
- Meetings can now be held by electronic or telephonic (conference call) means unless prohibited by the Bylaws. In the past, organizations would have been required to expressly permit meetings to be held in this manner. Now, the default legislated position is that meetings are permitted to be held by electronic or telephonic means but the Bylaws can restrict such permissions.
- Corporations are now given the capacity, rights, powers, and privileges of a natural person. This is important mainly for how Corporations borrow money. In the past, a Bylaw was required that authorized the Corporation’s borrowing powers. Now, a special Bylaw is not required.
- Directors are now formally required to act “honestly and in good faith with a view to the best interests of the corporation” and to “exercise the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances”. No Bylaw, policy, resolution, or contract can relieve a Director of his or her duties and standard of care.
- Directors who were elected by the Members can now be removed by Ordinary Resolution of the Members. Previously, the legislation required a Special Resolution of the Members. Importantly, Directors who are ex-officio (Directors by virtue of their position) can not be removed (which may be a good reason not to have ex-officio Directors).
- A vacancy created by the removal of a Director must now be filled for the remainder of the term at the meeting of the Members at which the Director was removed.
- Members may now decide, by extraordinary resolution (80% percent of the votes cast), to not have an auditor for a specific financial year if the corporation’s annual revenue in that year was less than $100,000.
- Bylaws can now clarify that an individual may be a Director without needing to be a Member.
Ontario Not-for-profit Corporations Act (“ONCA”)
The ONCA is not yet in force. It was expected to come into force a few years ago but encountered delays in its adoption following consultation with affected stakeholders. Many of the challenges with the ONCA were addressed by the passing of the Cutting Unnecessary Red Tape Act, including making it easier to transition from the Corporations Act to the ONCA. Here are some other new updates to the ONCA which will take effect when the ONCA comes into force:
- Similar to the update to the Corporations Act, organizations will now be given the formal ability to file, keep, and search documents in electronic format.
- An individual’s consent to act as a Director must now be in writing.
- Member categories may vote on certain ‘fundamental changes’ to the organization even if the Member category was not given a vote in the Bylaws. This section of the ONCA had always existed but it will now take effect at least three years after the ONCA comes into force – rather than at the same time as the rest of the legislation.
- Proxy voting will now be optional. The ONCA originally made proxy voting mandatory – but now the organization’s Bylaws must expressly permit Members to appoint a proxy.
Effect on Sport Organizations
Almost every not-for-profit sport organization incorporated in Ontario is incorporated under the Corporations Act. The legislation always takes precedence over the Bylaws – and the Bylaws cannot be in violation of the Act. Importantly, the amendments to the Corporations Act trump whatever material currently exists in the organization’s Bylaws.
Because of the changes to the legislation, even if your organization’s Bylaws currently read that “a Director may be removed from office by Special Resolution of the Members”, the Director can now be removed by Ordinary Resolution of the Members.
Given that it is still unclear when exactly the ONCA will be coming into force, it may be worthwhile for organizations to align their current Bylaws with the requirements of the updated Corporations Act. Or preferably, if the organization is forward-thinking, to align the Bylaws with Corporations Act but also, when necessary, to align the Bylaws with the provisions of the upcoming ONCA.
The Ontario government believes that the ONCA will come into force sometime in 2020. Every PSO and sport club in Ontario will need to take action. We are available to consult with you on the best path forward for your organization and to make changes now, reflecting the updates to the current legislation, and to discuss what changes should or will need to be made when the ONCA comes into force.
Kevin Lawrie (KRL@sportlaw.ca)
Steve Indig (SJI@sportlaw.ca)