Canada: What Does Canada’s New Not-For-Profit Act Mean For Non-Profit And Charitable Sectors?

On October 17, 2011 the new Canada Not-for-Profit Corporations Act (NPCA) came into effect. This new legislation was eagerly awaited by the Canadian non-profit and charitable sectors. Companies in these sectors had existed under the provisions of Part II of the Canada Corporations Act (CCA) which had become a completely outdated and arcane legislative framework. Legislation had been pending a number of times over the last many decades to modernize or replace the CCA but had never advanced.

The NPCA is therefore a most welcome development for the increasingly sophisticated entities which chose to incorporate as a non-share capital corporation. Unlike its predecessor the CCA, the NPCA codifies rules and regulations in an exhaustive way, leaving less to lengthy bylaws and likely less to common law which previously had to work together to supplement overly brief and inadequate legislative text. Instead, the NPCA itself expressly spells out corporate law requirements in an exhaustive and complete manner.

Much has been written about the new legislation in terms of its technical requirements, including most notably the requirement for existing CCA entities to continue under the NPCA on or before October 17, 2014. Little, however, has been said concerning the "how to" around the continuance process and particularly "how to" in an expeditious fashion. And even less appears in the media about some of the more intriguing possibilities as a result of legislative innovation.

Required Paperwork?

Under the NPCA, the paper burden is generally lessened and this extends to the continuance requirements. Form 4031 – Articles of Continuance (transition) – along with Form 4002 – Initial Registered Office Address and First Board of Directors and a Special Resolution of Members Authorizing an Application for Continuance – is all that is required for CCA companies to continue under the NPCA. Applicants for continuance appear to be putting their NPCA bylaws in place prior to continuance and submitting same alongside the continuance documentation; however, the technical requirement is simply that the bylaws be filed at Industry Canada within 12 months of actual continuance.

Resources From Industry Canada?

In practice, most non-profit and charitable organizations appear to be finding the continuance process reasonably smooth and straight forward. The user friendly nature of the Industry Canada materials which were released upon passage of the new legislation has been extremely helpful. In particular, the "Transition Guide – For Federal Not-For-Profit Corporations" is a practical and exhaustive resource and a welcome innovation for this industry sector.

Entities wishing to continue are urged to look at the Transition Guide before embarking on a continuance project. The Transition Guide carefully maps out the sequence of documentary requirements, ranging from a review of existing charter documentation, to drafting new articles, creating bylaws which are NPCA compliant, and seeking member approval. External legal counsel can be particularly useful in respect of drafting NPCA-compliant bylaws but a careful review of the Transition Guide will greatly assist the legal process and reduce the amount of time and resources required by external legal counsel.

On a similar note, the Industry Canada service standards, because of the more streamlined approach, appear to be greatly enhanced with continuances and incorporations occurring in a matter of days as opposed to the weeks that would have been typical under the prior legislative regime.

The Pros and Cons?

It is also notable that the NPCA is drafted in a concise and spare style, done intentionally to create a more user friendly approach for a sector which often grapples with cost constraints. Again, while the need to seek external legal advice in the continuance process may be inevitable for some organizations, it is nevertheless enormously helpful for all concerned to be working with legislation that attempts to be clear and written in plain English. On the negative side, though this is not a surprise, the NPCA really offers nothing new in terms of the charitable sector. Issues unique to charities continue to be regulated by the Income Tax Act (Canada).

What's Really New and Interesting?

One of the legislative innovations which will be interesting to monitor pertains to member remedies. Part 16 of the NPCA opens the door to statutory remedies pursued by a "complainant." Under the legislation, a complainant includes former or present members or creditors, the NPCA "Director," past and present corporate directors and officers, and potentially other individuals as well.

The array of remedies available to such individuals includes bringing an application for relief from "oppression." The oppression remedy may arise where the actions of a corporation are oppressive, unfairly prejudicial to, or unfairly disregard the interests of a complainant. Most commonly, at least in the for-profit world which was the genesis of this stakeholder tool, the oppression remedy arises in respect of stakeholder expectations which have, allegedly, not been met. "Stakeholder" is intended to refer to the wide array of potential complainants referred to above as the legislation seeks to provide a forum for economic relief beyond just shareholders – or in the case of the NPCA, members.

The threat of an oppression action is a tool that will be available to a wider variety of individuals and entities who intersect with a corporation and who may feel aggrieved. The nature of the complaint arises from something other than a clear wrong such as breach of contract. Instead, "oppression" has typically arisen when the fundamental expectations of a corporate participant have not been met. For example, in the for-profit world, a shareholder might claim oppression when the fundamental business of a corporation changes and morphs towards another business line. That shareholder could allege that the reason he or she invested in that company was because of its specific business line and perhaps that they have incurred a loss as a result of the business.

In the not-for-profit world, where personal profit is a less relevant concept, it will be up to the courts to somehow develop the remedy in a meaningful way. Notably, the powers of the court in respect of an oppression remedy are extremely wide-reaching and extend to everything from providing injunctive relief to appointing directors to compensating an aggrieved person.

It will be quite curious to see how complainants approach this potential remedy in not-for-profit settings and equally interesting to see how the courts will shape the scope of this potentially significant stakeholder weapon.

Conclusion

The NPCA has taken decades to materialize and will be the guiding legislation for an industry sector that increases in size every year. The not-for-profit sector should take heart that modernization has finally arrived.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.