In an effort to modernize its statutes and processes, the Government of Canada has brought about wholesale changes to the Canada Not-For-Profit Corporations Act (“the new NFP Act”). All federal not-for-profit corporations must complete the process to transition to the new rules no later than October 17th, 2014. Any not for profit corporation which fails to make the transition will be automatically dissolved.
The actual transition process itself is straight-forward. A not-for-profit corporation must seek a Certificate of Continuance pursuant to the new NFP Act. This process is similar to the original incorporation process but instead of seeking to be re-incorporated, not for profit corporations (“NFPs”) must instead seek to continue operating under to the new act and obtain a Certificate of Continuance from the federal Government. There is no fee to apply for a Certificate of Continuance.
The new NFP Act requires the creation of new articles. Some of the provisions from an NFP’s previous letters patent, such as the name of the NFP, classes of members of the NFP, and the maximum/minimum number of directors of an NFP may be carried over. Other provisions which previously had to be included, such as provisions dealing with the removal of directors, annual meetings of members, and the appointment of an auditor for the NFP, now are expressly required to be removed from an NFPs articles of continuance.
The NFP’s articles of continuance must be approved by no fewer than two-thirds of the NFP’s voting members. Apart from the 2/3 vote, the meeting will be governed by the existing NFPs by-laws and letters patent because the new rules won’t come into effect until the NFP has been issued a Certificate of Continuance.
Once the Certificate of Continuance is issued an NFP is also required to bring its by-laws into adherence with the new NFP Act. The by-laws don’t have to be amended at the same time as the articles. The new NFP Act only requires the new by-laws be filed within 12 months of the issuance of the Certificate of Continuance. There is no fee for filing amended by-laws either.
The new NFP Act has been designed to cover many of the provisions currently contained in most NFPs by-laws. The Act is purposely designed in this way to provide NFPs with default rules and by-laws for their operation which apply in all circumstances, unless an NFP expressly chooses to change the by-laws.
There are only two by-law provisions which an NFP is now required to include in its by-laws:
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- the conditions required to be a member of the NFP, conditions required to transfer among classes or groups of members, and conditions on which membership, whether in a class, or generally, ends; and,
- the manner in which notice of a meeting can be given to members entitled to vote at that meeting.
Should the NFP so choose, all other matters can be governed by the default rules contained in the new NFP Act.
If an NFP wishes to adopt different by-laws from the default prescribed in the new NFP Act, it still must operate within certain restrictions. For example, the new NFP Act requires that 5% of the members of an NFP eligible to vote can require that a meeting of the NFP be held. An NFP can choose to lower this requirement to a percentage lower than 5%, but it cannot raise this to any percentage higher than 5%. Equally, the default voting rules requite a 50% majority for an ordinary resolution and 66% majority for a special resolution of the NFP. An NFP can make these requirements stricter (requiring a higher percentage of the votes) but cannot make the requirements less stringent.
The decision to adopt different by-laws than the defaults should be governed by the needs of each individual NFP. No one set of by-laws can meet the needs of all NFPs.
While October 17, 2014 may seem in the distant future, it is advisable that NFPs commence the transition process now. Legal advice and assistance should be obtained early to ensure the new articles of continuance and by-laws are put in place in time, comply with the requirements of the new Act and are consistent with the needs and goals of the NFP itself.
Once legal advice has been obtained, and the proposed new articles and bylaws prepared, an NFP should convene one or more meetings of its voting members ensuring there is sufficient time for the passage of the new articles of continuance and by-laws. This will allow all necessary documentation to be filed well within the government timelines so as to ensure an NFP isn’t dissolved for failure to comply.