We last wrote about the Ontario Not-for-Profit Corporations Act (ONCA) in September 2013 and unfortunately not much has changed. The legislation is expected to come into force in 2015 but there may still be some wrinkles to that plan. This blogpost outlines what we know about the ONCA, what we do not know, and what incorporated sport organizations in Ontario should be doing in preparation for the new legislation.
What is the ONCA?
The ONCA is the legislation under which Ontario-based not-for-profit organizations are incorporated. The legislation outlines basic characteristics about all incorporated not-for-profit organizations such as rights of members, how directors are elected and removed, notice for meetings, director liability, proxies, records that must be kept, and auditors. The ONCA also offers protections for members and directors in terms of liability, conflict of interest, and finances.
Most sport organizations in Ontario are presently incorporated under the Ontario Corporations Act. We have a list of 6,016 local and provincial sport groups that are currently incorporated – from the Absolute Endurance Cycling Club to the Zurich Minor Athletic Association. Some of these groups may be inactive but there may also be a number of local clubs or leagues that are not incorporated (but should be).
The Ontario Corporations Act was intended for both for-profit and not-for-profit organizations. The ONCA is specifically for not-for-profit organizations and contains a number of items only relevant for not-for-profit organizations and nothing irrelevant (like ‘shareholders’ or other for-profit terms). The ONCA will not just apply to sport organizations but also to charitable groups, some churches, and community organizations. At the federal level, the Canada Not-for-profit Corporations Act (or ‘NFP Act’) came into force in 2011 and national incorporated organizations have completed (or have almost completed) their own transition to their new legislation. The ONCA is very similar to the NFP Act – and Ontario sport organizations can learn worthwhile lessons from their national counterparts – but there are some key differences.
How will the ONCA change my organization?
Organizations will be required to transition to the new legislation. Organizations that do nothing and refuse to transition will be “deemed to have transitioned” meaning that they will be considered to be operating with a set of bylaws that are compliant with the legislation which may not be the actual bylaws they use. In practical terms, an organization that does nothing will be at risk of having extremely confusing annual meetings if a disgruntled member wishes to challenge the existing bylaws that are not in compliance with the legislation. Untangling such a mess would be a logistical and paralyzing nightmare.
The ONCA will require organizations to be more aware how their bylaws work and the rights and protections they give to members. Organizations will also learn what material should be contained in the bylaws and what material (such as rules and policies) should be outside of them. For example, the colour of a team’s uniform is not an item that should be enshrined in the bylaws of a sports club. Similarly, game length and rules regarding player transfer are also examples of material that would be included in rules and policies – not bylaws.
A brand new set of ONCA-compliant bylaws will likely be the preferred option for many sport organizations – with items that are considered to be rules and policies not making the migration into the new bylaws. Drafting new bylaws is fairly straightforward but getting members to engage, agree with, and understand the new bylaws (especially for longterm members who may have a sensitive connection to the old material) will likely take a few years. Rules and policies should be separated from the bylaws into standalone documents.
Practically, under the ONCA the members of the organization obtain a little more power over the operation of the organization. Members who are being expelled are given a right to be heard and small number of members (10%) may requisition a full meeting of the members. Members may also vote by proxy and must be given financial statements before the annual meeting. Even members who are not intended to have a vote (non-voting members) will be given a vote on certain ‘fundamental changes’ that affect their rights.
Organizations will also need to pay attention to their finances because of the new audit requirements. Sport organizations will generally fall into one of two categories – ‘non-charitable public benefit’ or ‘non-public benefit’ – and each category has different audit requirements depending on the amount of revenue the organization brings in. For example, a public benefit corporation that has less than $100,000 of revenue may choose to waive the audit requirement if the members vote to do so by means of an extraordinary resolution (not less than three-quarters of the voting members).
When is the ONCA coming?
The ONCA was winding itself through the legislative system (as we documented in our earlier posts) and a new bill of technical amendments was issued to further amend some changes identified by the Ontario Nonprofit Network. The technical amendments bill is important because it describes some of the more practical aspects of the ONCA – the ‘Regulations’ – such as the number of days notice and whether an ordinary or special resolution is required for certain amendments. But the technical amendments bill ‘died on the order paper’ when a provincial election was called. The ONCA will still happen – but the technical amendments bill will need to be reintroduced by the new government following the election and go through the three stages of reading and the committee review. Depending on the elected government and its priorities, and how quickly the technical amendments bill gets through the stages, the ONCA may not fully come into force until 2015 or even 2016.
Even after the ONCA comes into force, organizations will still have three years to comply with the new law. Comparatively, the Federal NFP Act came into force in October 2011 and organizations have until October 2014 to transition to compliance. However at the federal level the consequences of not transitioning are more dire – full dissolution of the organization.
What should my organization be doing right now?
Just because the ONCA has been delayed does not mean that organizations can be immobile. Instead, organizations have been granted an extra window of opportunity for which they can educate their members and prepare for the transition process. We recommend two main preparatory pieces:
It is imperative that members understand what material should be contained within the bylaws and what material should exist within separate rules and policies documents. Members have power over the bylaws but may also empower the Board and committees to look after the rules and policies. The changing of a rule should not necessarily be discussed in front of all the members at the annual meeting. Instead, organizations could consider member input in committees for matters of rules or policies. There are multiple solutions for member engagement but, simply, rules and policies should never be a part of an organization’s bylaws.
2) Who you want to have as members
Since even non-voting members will be given voting rights for certain fundamental changes to the organization, it is important for organizations to determine who they want to be members. Smaller clubs may be comfortable with a membership pool of a few hundred individuals – but provincial organizations should be wary if their athletes (potentially in the thousands) are considered to be members. Instead, these individuals should be ‘participants’ or ‘registrants’ and the members would be larger consolidated groupings of participants and/or registered clubs. Further, having fewer membership categories – and not categories like ‘Life member’ or ‘Honourary member’ – is better because these small categories can vote as a class on certain fundamental changes; meaning that one or two people can veto the wishes of all the other members.
With the delay in the implementation of the ONCA will come a void of information that may be filled with speculation and misinformation. There is a lot we do know about the ONCA – but a lot we still do not know. Organizations will have time to react to the fully-formed ONCA once it is released sometime in 2015 (or after) but proactive organizations can start reacting now to what we already know.
We have given over two dozen presentations on the ONCA to groupings of sport clubs, provincial organizations, and municipalities. The main message of this blogpost is that the ONCA is delayed – but is still coming. Proactive organizations can act now to get ahead of everyone else and be in the best position to transition when the time comes.
Please feel free to email us with any questions.
Steve Indig – SJI@sportlaw.ca
Kevin Lawrie – KRL@sportlaw.ca
Kathy Hare – KEH@sportlaw.ca
LeeAnn Cupidio – LLC@sportlaw.ca