Ex officio directors, often found in legacy not-for-profit corporations, are prohibited by the Canada Not-for-profit Corporations Act.
Under the Canada Not-for-profit Corporations Act all directors must be elected by members. The only exceptions are where:
- there is a vacancy in the office of director (in which case, the remaining directors in office, if forming a quorum, can fill the vacancy unless the by-laws stipulate than only members can fill vacancies on the board); or
- the articles expressly permit the directors in office to appoint additional directors between annual meetings of members, not to exceed one-third of the number of directors elected at the last annual meeting.
What an Ex Officio Director Is, and Is Not
An ex officio director is an individual who is a director of a corporation, C1, by virtue of his or her office. Her office may be either in C1 itself (an internal ex officio directorship) or in some other organization, C2 (an external ex officio directorship).
For example, the constating documents of C1 might designate that the chief executive officer (or executive director) of C1 from time to time is a director of C1 (creating an internal ex officio directorship). Alternatively, the constating documents of C1 might designate the holder of an office in another organization, C2, as automatically a director of C1 (creating an external ex officio directorship). An example of an external ex officio directorship might be a charitable organization and a charitable foundation closely associated with the charity. Ex officio directorships can be used to formally link the two organizations together at the board level, i.e., creating at least a partially overlapping board.
In general, an ex officio director has the same rights and privileges and is subject to the same duties and liabilities as any elected or appointed director. Ex officio refers only to the method by which one becomes a director. It is neutral as to the rights and obligations that attach to the office of director - including voting rights.
For a not-for-profit ("NFP") corporation that is insistent on having ex officio directors, what are the options?
1. Functional Equivalent of an Ex Officio Directorship
The CNCA provides a straightforward way to achieve the functional equivalent of an ex officio directorship.
The CNCA is flexible as to how the articles define "members" and what voting rights are attached to each class or group of members. The articles may create a special membership class, comprised of as few as one member in that class, and give that member the exclusive right to elect or appoint a director to the board of the corporation. For example, to replicate an internal ex officio directorship provision, the articles could provide that the executive director (or chief executive officer) from time to time is a member of the corporation in her own class and that the members of this class are entitled to elect one member of the board (including herself). The special member may be given no other rights to vote or, in the case of a non-soliciting corporation, to participate in the remaining assets of the corporation on liquidation or dissolution.
To replicate an external ex officio directorship, the articles of C1 could provide that C2 is a member of C1 in its own class and, as such, entitled to elect one member of the board. Again, C2 may be given no other rights to vote (or any economic rights in C1's residual assets).
While this solution is not the same as having an ex officio director, it will in most respects yield substantively the same result.
The main drawback of this arrangement is that the special member will have certain overriding statutory voting rights under the CNCA. In particular, the special member will have the right to a separate class vote on a proposal to amend the articles to remove the exclusive right to elect a member of the board (ensuring that the class member's rights cannot be unilaterally removed by members of another class) or on a resolution to liquidate and dissolve the corporation.
2. Unanimous Member Agreement
The second solution is applicable only to members of a non-soliciting corporation: enter into a unanimous member agreement.
A UMA is not legally available to the members of a soliciting corporation. Even in the case of a non-soliciting corporation, a UMA becomes unwieldy if the number of members who are party to it becomes large. For example, it is rare to see a UMA where the number of members exceeds 50. All members (voting and non-voting) must be parties to the UMA for it to take effect.
However, in the case of a non-soliciting corporation with a small and largely stable membership base (such as certain trade associations), a UMA could be used to give a member (or even a non-member who is party to the UMA) the right to name one or more representatives to the board.
Where it applies, a UMA offers the following advantages in comparison with creating a special membership class in the articles:
- there is no need to create a separate membership class in the articles or even to make the holder of the right to name a director a member of the corporation; and
- the UMA does not give rise to any overriding statutory voting rights.
3. Export the Corporation to Another Jurisdiction
If both of the above options are unattractive to a CNCA corporation, the remaining option is to export the corporation from the CNCA and continue it under a provincial or territorial corporate statute that permits ex officio directors (such as the Ontario Corporations CNCA). Alternatively, C2 can simply become comfortable with an informal (and non-binding) understanding that it is in the best interests of C1 that a representative of C2 continue to have a place on the board of C1 and that the members of C1 will honour that informal tradition. C2's representative will not be immune from removal (or non-renewal) but will have to earn her re-election to C1's board.