Client Update: Time’s Ticking: Not-for-Profit Corporations
By October 17, 2014 existing not-for-profit corporations incorporated under Part II of the Canada Corporations Act (the “Old Act”) are required to be continued under the new Canada Not-for-Profit Corporations Act (the “New Act”) or face the possibility of automatic administrative dissolution. For those corporations that are also registered charities, dissolution could mean the revocation of their registration as a charity which could result in substantial tax penalties.
FEATURES OF THE NEW ACT
Generally the New Act has been modernized to conform with modern business corporation statutes. The New Act now provides a clear set of rules that govern the internal affairs of corporations under its jurisdiction including clear and coherent statements of member rights, rules regarding members and directors meetings, and provides specific rules regarding fundamental changes (amalgamation, continuance, liquidation and dissolution). The New Act also provides a benefit to those individuals who are acting as directors in that it sets out a due diligence defense for certain liability resulting from director negligence.
There is additional oversight under the New Act including the requirement to submit all bylaws and amendments thereto to Industry Canada. There are also financial reporting requirements under the New Act. For non-soliciting corporations with annual gross revenues in excess of $1,000,000 or for soliciting corporations with annual gross revenues in excess of $250,000, a full annual audit must be conducted. For those soliciting corporations with revenues between $50,000 and $250,000, an audit is required unless the members resolve that a review engagement is sufficient. For non-soliciting corporations with gross annual revenues under $1,000,000 or for soliciting corporations with revenues under $50,000, a review engagement is required unless the members resolve that one is not required. These records must be made available to members, directors and officers of the corporation and to Industry Canada. Soliciting corporations must make their financial records publically available.
PROCESS OF TRANSITION
Many of our clients may be involved as a director or in an advisory capacity for a not-for-profit corporation incorporated under the Old Act. We would strongly encourage corporations who have not started the continuance process under the New Act should act now to ensure the process is completed in time. For those corporations incorporated under the Old Act which are also registered charities, additional steps are required – particularly if the charity is looking to amend its purposes as part of the transition for which pre-approval from Canada Revenue Agency can take upwards of two to three months before the continuance process can be started under the New Act.
If your corporation has not yet transitioned, it is a fairly simplified process under the New Act. The corporation must replace its letters patent, supplementary letters patent (if any) and by laws with new charter documents which are in compliance with the New Act. The corporation must submit articles of continuance, forms confirming the initial registered office and first directors of the corporation and a name search confirmation. Bylaws which are in compliance with the New Act can either be submitted as part of the initial package or within twelve months of continuance following approval by the members.
Following successful transition under the New Act, all registered charities (including those who have not amended its purposes and even those who have obtained pre-approval from the Canada Revenue Agency) must submit the certificate of continuance, articles of continuance, various filing forms as well as a copy of the current bylaws and statement of current purposes to the Canada Revenue Agency.
The foregoing is intended for general information only and is not intended as legal advice. If you have any questions, contact one of our Business Lawyers.