INFocus: Have you transitioned to the Canada Not-For-Profit Corporations Act?Date: November, 2013
This article was originally published in the Comments Fall ’13 Issue.
On October 17, 2011, Canadian not-for-profit corporations (NFPs) formed under Part II of the Canada Corporations Act (CCA) were required to transition to the newly created Canada Not-for-Profit Corporations Act (CNCA) by October 17, 2014. If the transition is not completed in time, the NFP could be deemed inactive and dissolved, resulting in serious repercussions on operations. Although it sounds intimidating, once you understand the background of this change, the transition to CNCA will appear easy and beneficial to both management and members.
To understand this change, what is useful is to first draw a comparison between the old CCA regime and the new CNCA. Since 1917, the CCA has covered the formation of NFP corporations. While the old act provides very clear rules for profit-oriented companies, its rules were less clear with respect to NFPs. The CCA has clearly defined rules regarding items such as governance and incorporation, which also had to be addressed by NFPs in their by-laws. This meant that NFP by-laws could be quite lengthy, detailed and substantially different from one NFP to the next. NFP by-laws had to contain information such as: procedures for member meetings, the manner of electing and appointing directors, and the procedures for making, amending and repealing by-laws1. These by-laws were then submitted to Corporations Canada for review and approval before they could be adopted, making the process tedious and highly bureaucratic.
Under the old regime, member’s rights had to be defined in the corporate by-laws. Under the CNCA, default rights are included in the legislation. These default rights include enhanced voting rights, the right to requisition meetings for specific purposes, and access to corporate records2.
Furthermore, with the old process, the challenge was that as the NFP evolved, if it was considering making changes to its incorporation documents, it became very complicated and time consuming. CNCA’s goal is to simplify the incorporating process as well as to standardize corporate governance by providing a clear set of rules.
The CNCA reduces the need for complex and lengthy articles or corporate by-laws, since many of its rules are standardized in the act. NFPs can choose to include as much detail as is necessary in their by-laws. Like for-profit organizations, a standard set of by-laws are now adoptable, and can be modified to meet the specific needs of the NFP. These by-laws can then be filed with Corporations Canada without the need for government review and approval. The required yearly corporate obligations, such as holding an annual meeting of the board of directors, providing annual financial statements for approval at the meeting, and filing an annual information return, remain unchanged.
In order to transition to the CNCA, you must do the following:
- Review your existing letters patent and by-laws. As mentioned, because CNCA has standardized its governance, the articles and by-laws may now be significantly shortened as many of the rules are folded into the new act.
- Prepare your articles of continuance, which are to be prepared using Form 4031 – Articles of Continuance (transition). This can be found on the Corporations Canada website3.
- Revise your by-laws. Under the CNCA, all by-laws must have the following two mandatory provisions:
- Conditions required for membership
- Notice of meetings to members who are entitled to vote
If there are no other provisions in your by-laws, the default rules in the CNCA will apply.
- Call a meeting of members to review and approve the articles of continuance and submit them to Corporations Canada.
- Prepare and submit Form 4002 – Initial Registered Office Address and First Board of Directors, and a copy of the revised by-laws. If the NFP intends to change its name on transition, it must also file a copy of a NUANS Name Search Report with Corporations Canada.
After you have completed the above steps, you will be in compliance with the new act, and no longer run the risk of being deemed inactive and dissolved.
Lastly, in going through this process, the NFP Corporation should consider whether it is a soliciting or non-soliciting corporation. This classification is defined in the CNCA and affects the financial reporting requirements of the corporation.
For more information on transitioning, or questions on the differences between the new and old acts and your financial reporting requirements, do not hesitate to contact one of the advisors at Crowe Soberman LLP.
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