Examining the revamped Ontario Not-for-Profit Corporations Act

This is the first in a series of updates examining different provisions of the Not-for-Profit Corporations Act that came into force last year in Ontario. This update will highlight the important changes and requirements that Ontario not-for-profits need to know about.

After 10 years without any amendments or changes, the provincial government finally announced in early October 2021 that the Not-for-Profit Corporations Act, 2010 (Ontario) (ONCA) (the Act), would come into force on October 19 of that year. Its purpose was to modernize the laws of not-for-profit corporations (NFPs) and provide NFPs with three years to make the necessary changes to their governing documents (letters patent and bylaws) to become compliant with the new Act. ONCA applies to all NFPs and charities in Ontario that are governed by Part III of the Corporations Act (Ontario) and to all new NFPs seeking incorporation under the Act. However, the ONCA does not apply to NFPs incorporated under the federal Not-for-profit Corporations Act. All federal NFPs will still adhere to the federal legislation. 

General changes

Under the new Act, there are high-level changes and requirements that NFPs should know about. 

Not-for-profit corporations will be required to review their articles of incorporation (letters patents) to ensure the proper name and purposes of the corporation are set out explicitly. If any purpose of the corporation is focused on  commercial pursuits then that purpose must be explicitly set out in the articles.  

The Act additionally requires that a corporation's articles contain a provision setting out the number of directors, voting rights of general members, and the distribution of property (for a non-public benefit corporation) upon dissolution.

Public benefit corporations

The Act explains additional rules and restrictions for corporations it describes as a “public benefit corporation” or PBC. 

An NFP can be a PBC if it meets the following criteria: If it is a "charitable corporation," as defined in the Act, meaning it is incorporated to advance education or religion, relieve poverty, or other charitable purposes at law; or if the corporation is a non-charitable corporation that receives more than $10,000 in donations or gifts from individuals who are not members, directors, officers or any other employee in the corporation, or receives grants or similar financial assistance from any level of government or Crown corporation.

If an NFP meets the description of a public benefit corporation then the ONCA outlines that a PBC is not allowed to have more than 33% of its directors as employees. Furthermore, the Act dictates that there will be more onerous obligations for financial reporting (including appointing an auditor or individual to review the engagements of the corporation if it has annual revenue that exceeds $500,000) and differing restrictions on distributions of property to members. 

An NFP will be determined to qualify as a public benefit corporation at the first annual meeting in the subsequent financial year.

These additional rules and restrictions crystallize the importance of NFPs identifying their categorization under the new, modernized ONCA.

Bylaws

ONCA stipulates that if the articles provide for two or more classes of members, then the bylaws need to specify the conditions of membership for each class of member of the corporation. Additionally, ONCA outlines when the class of membership exceeds one then the NFP is required to detail how members could join, transfer or withdraw from each class of membership. 

The articles or bylaws may provide the circumstances and methods where disciplinary action can be carried out by the members, directors, or any committee of directors or members that have the power to discipline members or terminate their membership. Bylaws must adequately provide other means of voting such as by mail, telephone or electronic methods, in addition to or in place of voting by proxies.

Conflicts of interest for officers and directors

The Act outlines new requirements for directors and officers to report conflicts of interest. A director or officer of an NFP who is a party to a material contract or transaction, or a proposed material contract or transaction with the NFP (or is a director or an officer, or has a material interest in, any person who is a party to a material contract or transaction or proposed material contract or transaction with the corporation) must disclose to the corporation or request to have entered into the meeting minutes the nature and extent of this interest. Section 41(1) of ONCA, however, provides a reasonable due diligence and good faith reliance defense for directors with regard to conflict of interest allegations.

Member provisions

The Act clarifies and increases the rights of members to participate in governance and hold the corporation accountable. These are set out in the new enhanced member rights embedded throughout sections 174, 181 and 187 of ONCA, which explain the derivative actions, dissent measures and oppression remedies that are at the disposal of general members of an NFP. These rights comprise a wide array of avenues for members to pursue their objectives, including the ability to submit a member proposal on any matter the member wishes to raise at an annual meeting, to incorporate judicial measures for members including the ability to apply to the court for an investigation into oppressive or prejudicial actions by the corporation, and proxy voting, if included in the articles or bylaws.