CNCA Articles of Incorporation - Optional Elements

What follows is the final part of a two-part discussion on the content of articles of incorporation (Form 4001) under the Canada Not-for-profit Corporations Act ("CNCA"). Part I addresses the mandatory elements of the articles (namely, Boxes 1-4, 7 and 9). Part II addresses optional provisions (namely, Boxes 5, 6 and 8).

Most of the following comments apply equally to articles of continuance (import) in Form 4011 and articles of continuance (transitional) in Form 4031.

The box numbers below correspond to the numbered boxes in Form 4001.

Box 5 (Restrictions on the Activities that the Corporation May Carry On): Most corporations will choose not to adopt express restrictions. In that case, Box 5 should read:

"There are no restrictions."

Box 5 must never be left blank. Some corporations may wish to adopt restrictions to reinforce their mission or purpose. For example, the Canadian Cancer Society restricts itself from investing any surplus funds in companies that manufacture or sell tobacco products. The articles of the Nickel Institute, an international association of nickel producers continued under the CNCA, contain the following restriction:

"The corporation shall not carry on any activity that restrains or injures competition in nickel or any other product including, without limitation, fixing prices, limiting or controlling production, markets, technical development or investment, sharing markets or sources of supply."

Box 6 (Classes, or Regional or Other Groups, of Members that the Corporation is Authorized to Establish): A corporation may elect to have more than one class of members. If the corporation has only one class of members, Box 6 should state:

"There is one class of members. Each member is entitled to receive notice of and to attend and be heard at all meetings of the corporation and shall have one vote in all such meetings."

If the corporation wishes to have two or more classes of members, then the voting rights attached to each class must be stated in the articles. If a class of members is created in the articles, the default rule is that each member of the class has one vote at all meetings of the members. However, the articles can remove this voting right. The articles can also give a class the exclusive right, voting separately as a class, to elect one or more directors of the corporation. Members within the same class can also have multiple votes. For example, members can have multiple votes depending on their level of financial support.

Box 8 (Additional Provisions): The articles can include any provision that might be included in a by-law. Some common optional provisions in Box 8 include:

No pecuniary gain for members. Every corporation that is a charity or a non-profit organization under the Income Tax Act will need to include the following:

"The corporation shall carry on its activities without pecuniary gain to its members and any profits or other accretions to the corporation shall be used in furtherance of its purposes."

Directors to serve without remuneration. Most corporations that are registered charities or a registered Canadian amateur athletic association will include:

"Directors shall serve without remuneration, and no director shall directly or indirectly receive any profit from his or her position as such, provided that a director may be reimbursed for reasonable expenses incurred in performing his or her services."

And the articles might also add the following:

"A director shall not be prohibited from receiving compensation for services provided to the corporation in another capacity."

Appointment of additional directors between annual meetings. The flexibility to increase the board between annual meetings can be useful where, for whatever reason, the board wishes to add further strength or talent without having to call a special meeting of members (or waiting until the next annual meeting):

"The directors are authorized to appoint one or more directors, who shall hold office for a term expiring not later than the close of the next annual meeting of members, but the total number of directors so appointed may not exceed one-third the number of directors elected or appointed at the last annual meeting of members."

Meetings of members outside Canada. A corporation can hold a meeting of members outside Canada only if all members consent or the articles so provide as follows:

"Meetings of members of the corporation may be held at any place in [specify foreign locations.]"

Conditions of membership. It is often logical, and less confusing, to elevate certain provisions that can only be amended by special resolution of members from the by-laws to the articles.

Method of giving members notice of meeting. See (e) above. Notice can be sent by delivery, electronic means, mail, notice board posting, or, if there are more than 250 members entitled to vote, publication in a newspaper or newsletter sent to all members.

Method of absentee voting. See (e) above. Corporations can have proxies or absentee ballots. Ballots can be cast by mail or electronic means or both.

Super-majority approvals. If the corporation wishes to adopt a more onerous regime for amending all or certain provisions of the articles or by-laws, it can provide for this in the articles. For example, the articles could provide the by-laws (or specified provisions in the by-laws) cannot be amended without a special resolution. If adopted, consider excluding the quorum requirement. If the quorum at a meeting of members cannot be met, the board should retain the power to vary it. Otherwise, a corporation may be forced to apply for a court-ordered meeting of members just to vary the quorum requirement.

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