October 2013 leaves one year for corporations incorporated under Part II of the Canada Corporations Act (CCA) to transition to the Canada Not-for-Profit Corporations Act (CNCA). The CNCA provides federal not-for-profit corporations with a new set of rules that are modern, flexible, and better suited to the needs of today’s not-for-profit sector.
This should come as no surprise to board members, yet it will. The CNCA came into force in 2011. According to data provided by Corporations Canada, as of September 1st less than 1,700 out of approximately 25,000 corporations have made the corporate changeover. Recognizing that a reasonable number of these corporations are inactive or dormant, it still leaves thousands of corporations that will need to adhere to the October 17, 2014 deadline for continuance.
Since the CNCA received Royal Assent in Canadian parliament in 2009, much has been written extensively on its implications for not-for-profits and registered charities (including my blog – May10, 2013).
However, unless a corporation actually makes the transition, it will have much more pressing issues to deal with, namely possible dissolution by Corporations Canada. For registered charities, this could lead to revocation, which would result in the corporation having to pay a tax equal to 100% of the value of their remaining assets. All this can be avoided by following a few steps.
To make the transition, all CCA corporations need to replace their letters patent, supplementary letters patent (if any), and by-laws with Articles of Continuance and new by-laws that comply with the CNCA. Though it is possible to submit a new by-law after the deadline, our recommendation is to submit the documents all together. The reasoning behind this is that a corporation that continues under the CNCA without a new by-law will be governed by the default rules in the statute until it does, which could lead to much turmoil.
A corporation’s continuance must be approved by special resolution (i.e. two-thirds of the votes cast) at a meeting of the members. This meeting must take place in accordance with the corporation’s CCA by-laws, since those are the rules governing the affairs of the corporation until a Certificate of Continuance is obtained. However, if the corporation has more than one class of members, the special resolution to continue may need to be approved by each class separately, even if those members would not ordinarily have the right to vote. For this reason, it may be advantageous to make amendments to the corporation’s conditions of membership under the CCA in advance of making the transition to the CNCA.
The rules under the CNCA are quite different than the old CCA, so the specifics that need to be set out in the articles and by-laws are also different. We cannot state strongly enough that the transition process is not simply a matter of transposing the provisions of the letters patent into the articles and using the same by-laws. Continuing will take deliberation and time is running out.
If you are provincially involved in the province of Ontario, you fall under a slightly different act. The Ontario Not-for-Profit Corporations Act (ONCA) 2010 affects almost all Ontario corporations under the Ontario Corporations Act (OCA), and will most likely come into effect sometime in 2014. At end of the 3 years from when the ONCA comes into force, the letters patent, by-laws and special resolutions will be deemed to have been amended to conform with the requirements of the new Act if the not-for-profit has yet to follow suit.
Time is now of the essence as much will be needed to be done in the next 12 months for your NFP to be on-side. Don’t let proper planning and proper execution of this become a scramble in the coming year.