Menu

Lexicon of NFP Terms

Here is a lexicon of commonly used terms in the field of not-for-profit law.

Absentee Voting

Absentee voting refers to a member casting a vote at a meeting of members of an NFP corporation other than by attending the meeting in person. A CNCA corporation may opt in to any of the following methods of absentee voting:

  • voting by proxy;
  • voting by mailed-in ballot;
  • voting by means of a telephonic, electronic or other communications facility; or
  • a combination of the foregoing.

However, a CNCA corporation is not legally required to adopt a method of absentee voting and may therefore adopt a structure under which members may only vote by personal attendance at meetings.

Activities

Activities of an NFP organization refer to the external work or business carried on by the organization: what services or goods it delivers to members or to the community at large. Activities are to be contrasted with the internal affairs of the organization, which include the relations among the corporation and its members, directors and officers.

Advisory Bodies

The name sometimes given to a committee that includes one or more individuals who are not directors. An advisory body can make non-binding recommendations to the board but cannot exercise any of the decision-making powers reserved for the directors. See Committees.

Affairs

Affairs of an NFP organization refer to the internal relations among the corporations and its members, directors and officers. Affairs are to be contrasted with the external work or business carried on by the organization: what services or goods it delivers to members or to the community at large.

AGM

Abbreviation for annual general meeting. See Annual Meeting, which is the term used under the CNCA.

Alternate Director

A person who acts for an absent director at a meeting of directors. The CNCA does not permit alternate directors.

Amalgamation

The statutory process by which two or more corporations fuse together to continue as a single corporation with all the properties, rights, liabilities and obligations of each amalgamating corporation. Under the CNCA, an amalgamation is effected by filing articles of amalgamation and Corporations Canada issuing a certificate of amalgamation.

Annual Contributions

See Annual Dues.

Annual Dues

Also called annual contributions. In some NFP organizations (particularly mutual benefit corporations), annual dues are the primary (or even exclusive) source of funding for the organization's activities. Under the CNCA, the board has the power to determine annual membership dues or contributions - subject to any restrictions that may be set out in the articles or by-laws or, in the case of a non-soliciting corporation, in a UMA.

Annual Financial Statements

See Financial Statements.

Annual General Meeting

Abbreviated as AGM. See Annual Meeting, which is the term used under the CNCA.

Annual Meeting

Often still called an annual general meeting or AGM. Under the CNCA, the first annual meeting of members must be held no later than 18 months after incorporation. Subsequent annual meetings must be held no later than 15 months after the last annual meeting was held. An annual meeting may be called late if the Director appointed under the CNCA extends the time for calling the annual meeting.

The business transacted at an annual meeting generally consists of:

  • consideration of the financial statements and the report (i.e., the audit or review engagement report) of the public accountant (which is usually appended as the first page to the annual financial statements);
  • re-appointment of the incumbent public accountant; and
  • election of directors. Directors must be elected at an annual meeting. Annual elections of the entire board is the default rule under the CNCA. However, the articles or by-laws may provide for terms not to exceed four years. It is possible, therefore, for a CNCA corporation to hold an annual meeting at which no directors are required to be elected because their terms have not yet ended.

Any other business transacted at an annual meeting (including waiver of the appointment of a public accountant, replacement of the public accountant or amendments to the articles or by-laws) is special business and makes the meeting of members an annual and special meeting.

Annual Return

A form containing information that must be filed under the CNCA. The annual filing fee is $20 if filed online ($40 otherwise). If the corporation is delinquent in filing its annual return, the Director may, after giving a notice of intention to dissolve, dissolve the corporation.

Articles

The articles are the principal constitutional document of a CNCA corporation. Articles take precedence to the corporation's by-laws in the event of a conflict between the two. As a general rule, only members can amend the articles and a special resolution is required to do so (whereas, with a few exceptions, the board of directors of a CNCA corporation can amend most provisions of the by-laws).

There are various types of articles, the most important being articles of incorporation, articles of continuance and articles of amendment. Upon filing of the articles of incorporation or articles of continuance with Corporations Canada, the corporation receives a certificate of incorporation or a certificate of continuance. A CNCA corporation comes into existence when the certificate of incorporation (or continuance) is issued by Corporations Canada.

Under the CNCA, the articles of the corporation can provide for special majorities of the members or directors to approve any or all corporate acts or transactions. Special majorities cannot be validly set out in the by-laws. Also, the articles of a CNCA corporation may include any provision that could have been made part of the by-laws. If a provision is elevated from the by-laws to the articles, it becomes more entrenched in the sense that the provision can thereafter only be amended by special resolution of the members (rather than by a simple majority of the directors).

Audit

The highest level of review that a public accountant can perform in relation to a corporation's financial statements. All soliciting corporations whose annual revenues exceed $250,000 must have an annual audit.

Audit Committee

An audit committee is tasked with reviewing the annual financial statements of the corporation. While the CNCA does not require a corporation is have an audit committee, if the corporation opts to have an audit committee, it must be composed of not less than three directors, a majority of whom are not officers or employees of the corporation or any affiliate.

Auditor

Public accountant who provides an opinion on management's financial statements in accordance with GAAS.

Board

See Board of Directors.

Board Committees

See Committees.

Board of Directors

Also known as the board or as the directors. In some organizations, it may be called a board of governors or even a board of trustees.

Whether "the directors", "the board of directors" or "the board", means all of the directors of the NFP corporation acting as a collectivity. The board is not a legal person or entity as such. It is a collection of individuals. Unless the articles or a UMA otherwise provide, the board of a CNCA corporation decides all questions by a simple majority vote (i.e., the affirmative vote of 50% + 1 director voting thereon). Directors cannot vote by proxy.

Directors who are absent from a board meeting or who abstain from voting on a resolution are not counted in the numerator or denominator in determining whether a majority has voted in favour of the resolution. Suppose, for example, that a corporation has five directors, one of whom is absent from the board meeting and one of whom attends but abstains from voting on the resolution. The resolution would pass if two of the three directors who vote on the resolution vote in favour.

Under the CNCA, a board resolution may also be passed by resolution in writing signed by all of the directors entitled to vote on it (that is, directors who are not entitled to vote because they have a director or indirect material conflict of interest in the contract or transaction must not sign the resolution).

Under the CNCA, all directors must be elected by the members. The CNCA does not permit ex officio directors (that is, individuals who become directors of the corporation by virtue of holding another office or position within or outside the corporation).

By-laws

By-laws of a CNCA corporation or an OCA corporation set out the regulations governing the activities and affairs of the corporation. By-laws are considered one of the constitutional documents of an NFP corporation. However, by-laws are subordinate to the articles (in the case of a CNCA corporation) or the letters patent (in the case of an OCA corporation). Unlike the articles of a CNCA corporation (which can generally only be amended by special resolution of the members), most by-laws of a CNCA corporation may be amended by a simple majority of the board of directors (although the members must confirm the by-law or by-law amendment at the next meeting of members).

The articles of a CNCA corporation may include any provision that could have been made part of the by-law. If a provision is elevated from the by-laws to the articles, it becomes more entrenched in the sense that the provision can thereafter only be amended by special resolution of the members (rather than by a simple majority of the directors).

A CNCA corporation is required to file its by-laws with Corporations Canada and amending by-laws within 12 months of confirmation by the members. However, the by-laws remain in effect even if not filed, and the CNCA does not provide a specific penalty for late-filing by-laws.

Canada Corporations Act

Abbreviated as the CCA. It was the primary federal incorporation statute for not-for-profit corporations before the CNCA was proclaimed in force. In short, the CCA is being phased out and replaced by the CNCA.

Canada Not-for-profit Corporations Act

Abbreviated as the CNCA. Came into force on October 17, 2011. Since that date, all federal not-for-profit corporations must be incorporated under this Act. All non-share capital corporations incorporated under Part II of the CCA must take the necessary steps to continue under the CNCA by October 17, 2014 (i.e., the third anniversary of the proclamation of the CNCA); otherwise, the CCA corporation is liable to be administratively dissolved.

Canadian Institute of Chartered Accountants

Abbreviated as CICA. It is the national association representing chartered accountants across Canada.

Of particular relevance to the NFP sector, the CICA publishes the:

  • CICA Handbook - Accounting, which sets out the generally accepted accounting principles applicable to most NFP corporations;
  • CICA Public Sector Accounting Handbook, which sets out the generally accepted accounting principles applicable to certain NFP corporations considered part of the public sector; and
  • CICA Handbook - Assurance, which sets out generally accepting auditing standards applicable to audit engagements and review engagements.

Casting Vote

Also called a second vote. A provision (usually set out in the by-laws) in which the chair of a meeting is entitled (but not required) to cast a second vote (even if he or she has already cast one vote in his or her capacity as a member or director) in the event of a tie vote.

A casting vote may be provided for at meetings of members, board meetings or committee meetings. However, the default rule under the CNCA is that there is no casting vote unless expressly provided for in the constating documents. If no casting vote is provided for, then, in the event of a tie vote, the resolution would simply be defeated because it failed to garner a simple majority (i.e., 50% + 1 of the votes cast).

CCA

Abbreviation for Canada Corporations Act.

CICA

Abbreviation for Canadian Institute of Chartered Accountants.

CICA Handbook - Accounting

See Canadian Institute of Chartered Accountants.

CICA Handbook - Assurance

See Canadian Institute of Chartered Accountants.

CICA Public Sector Accounting Handbook

See Canadian Institute of Chartered Accountants.

Class

Also, referred to as a group of members. Under the CNCA, it is possible to have two or more classes (or groups) of members. If so, the articles must set out each separate class and the voting rights and restrictions applicable to each class.

Class Director

One or more directors who are elected or appointed exclusively by a class of members in accordance with their voting rights as set out in the articles. Even though a class director is elected or appointed by a class of members, the director's duty of loyalty is owed exclusively to the corporation as a whole. A class director can take the interests of the class into account when making decisions, but cannot let it determine what is in the best interests of the corporation as a whole.

Class Vote

The right of a class or group of members to vote separately as a class. Where a class of members has a separate class vote, the class has in effect veto power over the resolution requiring the class vote.

CNCA

Abbreviation for Canada Not-for-profit Corporations Act.

Committees

The board has the power to establish and appoint committees and, subject to certain restrictions, delegate some of its powers and functions to a committee. Common examples of board committees are the audit committee, compensation committee, executive committee and governance and nominations committee.

However, the board can only delegate its powers to a committee comprised entirely of board members. Under the CNCA, a board cannot delegate its powers to a committee that includes as members individuals who are not directors. Such a committee or advisory body could make non-binding recommendations to the board, however.

Compilation Report

If all the members of the corporation waive the appointment of a public accountant and, therefore, no audit or review engagement is performed, the external accountant will issue a compilation report, including a "notice-to-reader" warning of the accounting firm's limited engagement.

Complainant

Under the CNCA includes:

  • a former or present member of the corporation (or the holder of a debt obligation);
  • a former or present director or officer of the corporation;
  • the Director under the CNCA; and
  • any other person who, in the discretion of the court, is a proper person to make an application for a derivative or oppression action or a compliance or restraining order.

Compliance Order

Also known as a compliance and restraining order. An order made on application of a complainant or creditor:

  • directing a corporation or any director, officer, employee, agent, public accountant, receiver or liquidator of a corporation to comply with the applicable corporate legislation or the constating documents of the corporation; or
  • restraining any such person from acting in breach of such legislation or constating documents.

Conditions of Membership

The conditions or qualifications a person must meet to become, or remain as, a member set out in the constating documents.

Constating Documents

Also known as the constitution of an NFP corporation.

For a CNCA corporation, the constating documents consist of the articles and by-laws. A non-soliciting CNCA corporation may also have a third constating document: a unanimous member agreement. A soliciting corporation cannot have a valid unanimous member agreement.

For an OCA corporation, the constating documents consist of the letters patent and by-laws.

Conflict of Interest

Generally describes a contract or transaction, whether made or proposed, in which a director or officer of the corporation:

  • is a party to the contract or transaction;
  • is a director or officer of a party to the contract or transaction (or acting in a similar capacity for a non-corporate counterparty); or
  • has a material interest in a party to a contract or transaction.

Continuance

The legal process by which a corporation incorporated under the laws of one jurisdiction discontinues under that jurisdiction and becomes a corporation that is subject to the laws of another jurisdiction. A continuance is sometimes effected so that the corporation can move to the jurisdiction whose laws are most favourable to it. Continuance also describes the process whereby a corporation under the CCA files articles of continuance to become a corporation subject to the CNCA.

A CCA corporation cannot continue, except to the CNCA. However, a CNCA corporation can continue out of the federal jurisdiction to the laws of a province or territory that permits the import of NFP corporations. Ontario permits both an export continuance and an import continuance.

Corporation Without Share Capital

Also known as a non-share capital corporation. See Not-for-profit Corporation.

Corporations Act (Ontario)

See Ontario Corporations Act.

Corporations Canada

Part of Industry Canada. Corporations Canada administers the CNCA and the CCA. Among other things, articles of continuance and articles of incorporation are filed with Corporations Canada. Corporations Canada also has the power to involuntarily dissolve a CNCA corporation for various reasons. After first giving written notice, Corporations Canada may also dissolve a CCA corporation for failing to continue under the CNCA by October 17, 2014.

Court-ordered Meeting

A meeting ordered to be held by the court. Under the CNCA, a court may order a meeting to be called, held and conducted for any reason that the court considers sufficient, including where it is not practicable to:

  • call the meeting within the time and in the manner in which the meeting is otherwise to be called; or
  • conduct the meeting in the manner required by the CNCA or the by-laws, which includes the power of the court to vary or dispense with the quorum required by the by-laws or the CNCA.

D&O Insurance

A policy of insurance coverage that a corporation may purchase to protect its directors and officers from claims made against them in their capacity as directors or officers of the corporation or, generally, its affiliates. Generally, a D&O policy covers defence costs. The singular advantage of D&O insurance is that it is available to the director and officer in circumstances when the corporation itself may be unable to pay due to its bankruptcy, insolvency or dissolution.

Derivative Action

An action or proceeding brought by a complainant in the name of and on behalf of the corporation rather than authorized by the board of the corporation. Less commonly, the complainant may be entitled to defend an action brought against the corporation. Leave of the court is required to commence or defend an action by a complainant. A derivative action is most often sought where the proposed action is against a majority of the members of the board of directors who will not authorize an action by the corporation against themselves.

Director (The)

The Director under the CNCA is the individual appointed by the Minister of Industry as head of Corporations Canada. The Director exercises various regulatory powers under the CNCA.

Directors

Also referred to as the board of directors or, simply, the board. A director means an individual member of the board of directors. Only individuals (who are at least 18 years of age, not undischarged bankrupts and not found by a court to be mentally incapable) are qualified to act as directors of a CNCA corporation. Corporations and other entities cannot be directors.

Directors of a CNCA corporation must manage (or supervise the management of) the activities and affairs of the corporation. Each director of a CNCA corporation is subject to statutory duties of loyalty and care and must at all times act exclusively in the best interests of the corporation on whose board he or she sits (and not in his or her own self-interest or the interest of the any of the members or other constituents he or she may happen to represent even if nominated, elected or appointed by that member or class of members).

Whenever there is a change in the composition of the board or any change in an individual director's address, a notice of directors must be filed with Corporations Canada.

Discipline of Members

The articles or by-laws of a corporation may provide that the directors (or a committee of directors) has the power to discipline a member or terminate a membership (i.e., expel a member). If the articles or by-laws of a CNCA corporation provide for such discipline, they must set out the circumstances and the manner in which that power may be exercised.

Dissent

A director who disagrees with a decision taken by a majority of directors may have his or her dissent recorded, in which case, the director will be exonerated from any liability arising from the action authorized by the board. Unless a director properly records his or her dissent, he or she will be deemed to have consented to the resolution or action taken at the meeting (even if he or she is not present at the meeting) and could face personal liability as a result.

Dissolution

The dissolving of a corporation. The corporation ceases to exist on dissolution although, in the case of involuntary dissolution under the CNCA, the corporation may be revived by filing articles of revival. Any assets of the corporation existing at the time of dissolution are forfeited to the Crown under escheat legislation (subject to restoration to the corporation if it is revived).

Due Diligence Defence

The defence that a director or officer has to personal liability if he or she exercised the care, diligence and skill that a reasonably prudent person would have exercised in comparable circumstances.

Duty of Care

Also sometimes called the negligence standard. The duty imposed on directors and officers to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

Duty of Loyalty

Also called the fiduciary duty. The duty imposed on directors and officers to act honestly, in good faith with a view to the best interests of the corporation. The duty of loyalty is owed exclusively to the corporation - although, in determining what is in the best interests of the corporation, directors of an NFP corporation can take into account the interests of various other stakeholders such as members, employees, creditors and the wider community served by the corporation's activities.

Expulsion

See Discipline of Members

Fiduciary Duty

See Duty of Loyalty.

Financial Statements

Sometimes also called the annual financial statements. Under the CNCA, the annual financial statements consist of:

  • a statement of financial position (often called a balance sheet);
  • a statement of comprehensive income (often called a statement of retained earnings), which in practice is usually combined with the statement of financial position;
  • a statement of changes in equity (often called an income statement);
  • a statement of cash flows (often called a statement of changes in financial position); and
  • notes to the above financial statements.

However, a corporation need not use these designations for its financial statements.

Under the CNCA, financial statements must be prepared on a comparative basis (i.e., showing the current financial year and the financial year immediately before the current year). Also, the comparative financial statements must be prepared in accordance with the CICA Handbook - Accounting or the CICA Public Sector Accounting Handbook.

Under the CNCA, the default rule is that the financial statements of the corporation (or a summary) must be sent to each member of the corporation at least 21 days before the annual meeting. Members generally receive but do not need to approve the financial statements at the annual meeting.

Fixed Number of Directors

Under the CNCA, the articles can set out either a fixed or floating number of directors. To set out a fixed number of directors, the articles would specify the same number of directors (for example, five directors) as the minimum and the maximum.

A soliciting corporation must have a minimum of three directors, two of whom are not officers or employees of the corporation or any affiliate. A non-soliciting corporation may have as few as one director who may or may not be an officer or employee of the corporation.

See also Floating Number of Directors.

Floating Number of Directors

Under the CNCA, the articles can set out either a fixed or floating number of directors. To set out a floating number of directors, the articles would specify a minimum of directors and a maximum number, which would be higher than the minimum number. A soliciting corporation must have a minimum of three directors, two of whom are not officers or employees of the corporation or any affiliate. A non-soliciting corporation may have as few as one director, who may or may not be an officer or employee of the corporation.

If the articles specify a range in the minimum and maximum number of directors, the members may, from time to time, by ordinary resolution fix the number within the range to be elected at annual meetings or delegate that power to the board.

See also Fixed Number of Directors.

GAAP

Generally accepted accounting principles.

GAAS

Generally accepted auditing standards.

Good Faith Reliance Defence

Under the CNCA, a director has a defence against certain liabilities if he or she complied with the duty of care, including reliance in good faith on:

  • financial statements of the corporation represented to the director by an officer of the corporation or in a written report of the public accountant fairly to reflect the financial condition of the corporation; or
  • a report of a person whose profession lends credibility to a statement made by that person. This would include lawyers, public accountants, medical doctors, psychiatrists, social workers and veterinarians.

Group of Members

See Class.

Incorporator

The function of an incorporator is to sign the articles of incorporation of a CNCA corporation. Under the CNCA, an incorporator can be one or more of the following:

  • a body corporate; or
  • an individual who is not less than 18 years of age, has not been declared incapable by a court and is not an undischarged bankrupt.

Indemnification

Also called directors and officers indemnification or D&O indemnification. In relation to present and past directors and officers, means the obligation of the corporation to indemnify the present or former director or officer against costs, charges and expenses (including an amount paid to settle an action or satisfy a judgment) reasonably incurred by the individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of his or her association with the corporation (or other entity). Under the CNCA, indemnification is not permitted unless:

  • the individual complied with his or her duty of loyalty to the corporation or the other entity for whom the individual acted as director or officer at the corporation's request;
  • in the case of a criminal or administrative action or proceeding that is enforced by monetary penalty, the individual had reasonable grounds for believing that his or her conduct was lawful; and
  • in the case of an action by or on behalf of the corporation to procure a judgment in its favour, a court approves the indemnity payment.

Indoor Management Rule

The rule that a party contracting with a corporation and dealing in good faith may assume that acts of the corporation's directors, officers and employees have been duly authorized and that the corporation will be bound by the actions of its directors and officers that it holds out as having authority.

Industry Canada

The department of the Government of Canada that includes Corporations Canada. Often, Corporations Canada and Industry Canada are used interchangeably - although Corporations Canada is only a part of Industry Canada.

Liquidation

Also called winding-up. A liquidation may be voluntary (if approved by special resolution of each class of members) or involuntary (if ordered by court on application). In a liquidation, a liquidator is appointed. The liquidator realizes or sells all of the corporation's assets, pays off or settles all corporate liabilities and distributes the remaining assets in accordance with the liquidation distribution provisions in the articles of the NFP corporation.

A liquidation differs from a dissolution in that, in a dissolution, no liquidator is appointed. In a voluntary dissolution, articles of dissolution are filed, with the corporation being dissolved when the certificate of dissolution is issued.

Liquidation Constraint

Along with the restriction against making distributions in favour of members before liquidation or dissolution, the liquidation constraint is of the essence of what it means to be an NFP corporation. The articles of a CNCA corporation must include a liquidation constraint, that is, a constraint on the parties to whom the net surplus assets of the Corporation may be distributed on liquidation.

Soliciting corporations can only distribute their net surplus assets to qualified donees. Non soliciting corporations are less restricted. The default rule under the CNCA is that, in the absence of a specific provision to the contrary in the articles, a non-soliciting corporation can distribute its net assets, after payment of all creditors, to its members equally..

Liquidation Distribution

A distribution of the net assets of the corporation on liquidation or dissolution, after payment of all creditors and the return of any property to a donor who gave it on condition that it would be returned if the corporation were to be dissolved.

Liquidator

The person (usually but not always a firm that is a licensed trustee in bankruptcy) that:

  • takes into its custody and control the property of the corporation;
  • carries on the activities of the corporation pending dissolution;
  • sells the property of the corporation; and
  • after satisfying the claims of creditors, distributes the net assets of the corporation in accordance with the articles of the corporation.

List of Members

See Register of Members.

Management

Generally refers to the paid officers (or senior employees) of the NFP corporation. See Officers.

Meetings of Members

Under the CNCA, there are two types of meetings of members, annual meetings and special meetings.  These meetings are often held simultaneously, in which case it must be called an "annual and special meeting".

See Annual Meeting and Special Meeting.

Member's Proposal

See Proposal.

Members

Legally, a member of an NFP corporation is a person who has been admitted into membership in accordance with the constating documents of the organization. The articles of a CNCA corporation must specify the classes or groups of members in the corporation and the voting rights and restrictions attached to each class or group of members. Generally, the conditions or qualifications for becoming and remaining a member of an NFP corporation are set out in the by-laws. However, under the CNCA, any provision that could be included in the by-laws may instead be elevated (or entrenched) in the articles.

Under the CNCA, the primary role of members consists of electing directors, approving changes to the articles, confirming by-laws and by-law amendments and appointing or waiving the appointment of a public accountant.

NFP

Abbreviation for not-for-profit, which is an organization that is formed for purposes other than to make profits and return profits to investors as a return on investment.

Non-delegable Board Powers

Under the CNCA, a board cannot delegate any of the following powers:

  • submitting to members any question or matter requiring their approval;
  • filling a vacancy among the directors or, if permitted by the articles, appointing additional directors;
  • filling a vacancy in the office of public accountant;
  • issuing debt obligations (such as a debenture);
  • approving annual financial statements;
  • adopting, amending or repealing any by-laws; or
  • establishing annual membership dues or contributions.

Non-share Capital Corporation

See Not-for-profit Corporation.

Non-soliciting Corporation

The residual type of corporation under the CNCA. Any corporation that is not a soliciting corporation is a non-soliciting corporation. See Soliciting Corporation.

Not-for-profit Corporation

Abbreviated as an NFP corporation. Also known as a non-share capital corporation or a corporation without share capital. A corporation that does not have shares and generally does not permit dividends or other returns to members before the liquidation and dissolution of the corporation (although some NFP corporations permit a distribution of surplus assets to members on liquidation or dissolution).

Not-for-Profit Corporations Act, 2010 (Ontario)

See Ontario Not-for-Profit Corporations Act, 2010.

Notice of Meeting

Generally, notice of a meeting of members must be given to all members entitled to notice. The only exceptions are where the members waive notice (including waiver by attending at the meeting and not objecting to the transaction of any business at the meeting) or all members entitled to vote sign a resolution in writing.

A notice of meeting of members is subject to both content and timing requirements. Any business transacted at an annual meeting other than:

  • consideration of the financial statements and the report (i.e., the audit or review engagement report) of the public accountant on the financial statements;
  • re-appointment of the incumbent public accountant; and
  • election of directors,

is special business, and the notice must state the nature of that business in sufficient detail to permit a member to form a reasoned judgment on the business. If any special resolution is to be submitted to the meeting, the notice of the meeting must include the text of the special resolution. The same content requirements apply to all special meetings.

Under the CNCA, notice must generally be given at least 21 days and not more than 60 days before each meeting of members. Different notice periods may apply where notice is given by electronic or telephonic notice or notice is given by newspaper advertisement.

Generally, notices of board meetings require much less detail and advance timing than notices of meetings of members. The CNCA only requires that notice specify content if the business to be transacted at the meeting includes one or more of the following:

  • submitting to members any question or matter requiring their approval;
  • filling a vacancy among the directors or, if permitted by the articles, appointing additional directors;
  • filling a vacancy in the office of public accountant;
  • issuing debt obligations (such as a debenture);
  • approving annual financial statements;
  • adopting, amending or repealing any by-laws; or
  • establishing annual membership dues or contributions.

OCA

Abbreviation for Ontario Corporations Act.

Officer

Generally includes both officers who are members of the board of directors and officers who are full or part-time paid managers or employees of the corporation.

While the CNCA does not require the creation of any particular offices, NFP corporations will often have one or more of the following officers: chair or chairperson (who must be a member of the board of directors); vice-chair or vice-chairperson; president; executive director; vice-president; secretary; treasurer; and general manager.

If the corporation is a charity (whether or not a registered charity under the Income Tax Act), all paid officers must not sit as directors. Directors of a charitable corporation cannot receive remuneration from the corporation as directors, officers or in any other capacity.

ONCA

Abbreviation for Ontario Not-for-Profit Corporations Act, 2010.

Ontario Corporations Act

Abbreviated as the OCA. It remains the primary incorporation statute for non-for-profit corporations in Ontario. When proclaimed in force, the Ontario Not-for-Profit Corporations Act will supercede the OCA. All corporations that are incorporated under Part III of the OCA will automatically become subject to the ONCA when the ONCA comes into force. In time, the ONCA will replace Part III of the OCA.

Ontario Not-for-Profit Corporations Act, 2010

Abbreviated as the ONCA. Although passed in 2012, this statute has not yet been proclaimed into force. Proclamation is not expected before July 1, 2015 and could well be delayed beyond that date. Upon proclamation into force, all corporations currently subject to Part III of the OCA will automatically become subject to the ONCA.

Oppression Action

A broad, discretionary action or proceeding brought by a complainant (usually against the corporation and those directors and members who control the corporation) asserting that:

  • an act or omission of the corporation;
  • the conduct of the activities or affairs of the corporation; or
  • the exercise of the powers of the directors or officers of the corporation,


is oppressive or unfairly prejudicial to or unfairly disregards the interests of, among others, any member, creditor or director.

Ordinary Resolution

Means a resolution passed by a simple majority (i.e., 50% +1) of the votes cast by members on that resolution. If provided for in the articles or by-laws of a CNCA corporation, an absentee member may vote by proxy or ballot.

If a member does not vote (either because not present in person or by proxy at the meeting or, if attending the meeting, chooses not to cast a vote), his or her vote is not included in either the numerator or denominator in determining whether a simple majority has voted in favour of the resolution. Suppose, for example, that a corporation has 25 members, five of whom are absent from the meeting of members and one of whom attends but abstains from voting on the resolution. The ordinary resolution would pass if 10 of the 19 members who vote on the resolution vote in favour of it.

Under the CNCA, an ordinary resolution may also be passed by resolution in writing signed by all of the members entitled to vote on it (that is, non-voting members are not required to sign the resolution in writing).

Proposal

The statutory right of one or more members to submit to the corporation written notice that the member proposes to raise a matter at the next meeting of members. A proposal could seek to:

  • amend the articles;
  • amend the by-laws;
  • liquidate and dissolve the corporation;
  • nominate one or more directors (provided that the proposal is supported by not less than 5% of the members entitled to vote at the meeting); or
  • raise any other business that the member wishes to raise even if the matter is only advisory because it lies outside the legal authority of the members.

A corporation can refuse to circulate a proposal on various grounds, including delivery of the proposal after the cut-off time, that the proposal does not relate in a significant way to the activities of the corporation or that substantially the same proposal has recently been presented and the proposal failed to garner the minimum level of support to be brought back.

Public Accountant

Under the CNCA, means a provincially-licenced accountant (such as a chartered accountant or certified general accountant) or firm of accountants. A public accountant can either audit the annual financial statements of an NFP corporation or perform a review engagement. Certain NFP corporations with annual revenues below prescribed levels may, if approved unanimously by all voting and non-voting members, opt to not appoint a public accountant. In that case, the external accounting firm, if any is appointed, would merely compile the financial statements. The firm would issue a notice to readers disclaiming any professional responsibility for the compilation of the financial statements.

Purpose

See Statement of Purpose.

Qualifications of Directors

Under the CNCA, a director must be:

  • an individual;
  • at least 18 years old;
  • not an undischarged bankrupt; and
  • not found by a court to be incapable.

A director may but need not be a member, unless the constating documents otherwise require. The constating documents can impose additional qualifications or disqualifications on directors.

Qualified Donee

On liquidation or dissolution, a soliciting corporation (and any CNCA corporation that is a registered charity under the Income Tax Act that is not already caught by the definition of soliciting corporation) must distribute its residual assets (after satisfying all liabilities and returning property to any donor who gave the property on condition that it would be returned on dissolution) to one or more qualified donees (and no other parties).

The Income Tax Act defines qualified donees as:

  • registered charities;
  • registered Canadian amateur athletic associations;
  • housing corporations in Canada set up exclusively to provide low-cost housing for the aged;
  • the Crown (national, provincial or territorial);
  • Canadian municipalities;
  • the United Nations and its agencies;
  • foreign universities the student body of which ordinarily includes Canadian students; and
  • registered foreign charitable organizations if the Minister of National Revenue is satisfied that the foreign organization is carrying on relief activities in response to a disaster, providing urgent humanitarian aid or carrying on activities in the Canadian national interest.

Quorum

At meetings of members, the minimum number or proportion of members who must be present in person (or represented by proxy if permitted by the constating documents) before the meeting of members will be validly constituted for the transaction of business. Under the CNCA, the default rule is that a majority of the members (i.e., 50% + 1) must be present in person to constitute a quorum. However, an organization can alter its quorum requirements to be greater or, more often, less than a simple majority. An organization with a widely diffused or disengaged membership may be unable to hold a valid meeting of members if the quorum is set too high.

Under the CNCA, however, the board can generally alter the quorum requirement by unilaterally amending the by-laws so that a valid meeting of members can take place. In that case, it is critical to have the members confirm the by-law amendment at the meeting because, if not confirmed at that meeting, the same (or substantially the same) quorum amending by-law may not be re-enacted by the board. A court-ordered meeting may then become necessary.

Quorum requirements also apply in the case of board meetings and committee meetings. Again, the default rules are that a quorum consists of a simple majority of the directors (or committee members) unless the constating documents otherwise provide.

Record Date

The record date determines:

  • who is entitled to receive notice of a meeting of members;
  • who is entitled to vote at that meeting;
  • in the case of a non-soliciting corporation, who is entitled to participate in a liquidation distribution; and
  • membership for any other purpose.

Registered Office

A CNCA corporation is required to have its registered office in the province or territory stated in its articles. The board can by resolution relocate the registered office within the province or territory stated in the articles. A notice of change of address must be filed with Corporations Canada.

If the registered office is to be relocated outside the boundaries of the province or territory set out in the articles, the members must first authorize an amendment to the articles by special resolution.

The function of the registered office is to be the place where the corporation can be sent or served various notices required or permitted under the Act (including a notice of intent to dissolve issued by Corporations Canada).

Register of Members

A CNCA corporation is required to maintain a register of members which must include the following information:

  • the name of each member;
  • the current residential or business address of each member;
  • an email address if the member has consented to receiving information or documents by electronic means;
  • the date on which that member became a member and, if applicable, the date on which that person ceased to be a member; and
  • the class or group of membership of each member, if any.

In certain cases, members and creditors of the corporation may examine and, on payment of a reasonable fee, take extracts from the register of members. A list of members would be important if a dissident group wished to requisition a meeting of members to effect changes in the board and solicit proxies from the members.

Religious Corporation

The CNCA provides that religious corporations enjoy an exemption from court-ordered liquidations, derivative actions and oppression proceedings if:

  • the impugned act, omission, conduct or exercise of powers is based on a tenet of faith held by the members of the corporation; and
  • it was reasonable to base the act, omission, conduct or powers on the tenet of faith, having regard to the corporation's activities.

The CNCA does not, however, attempt to define what constitutes a "religious corporation" or a "tenet of faith".

Requisitioned Meeting

The right of a proportion of members (set at 5% of the members entitled to vote in the CNCA unless the constating documents of the corporation set out a lower proportion) to compel the corporation to call and hold a meeting of members. If a meeting is requisitioned, the board may call the meeting. However, it the board fails to call the meeting within 21 days from receiving the requisition, any member who signed the requisition may call the meeting. A requisitioned meeting is a particularly useful tool where there is not a quorum of directors left in office or the members wish to remove and replace all or a majority of the directors.

See, also, Court-ordered Meeting.

Restraining Order

See Compliance Order.

Review Engagement

The level of financial statement review that a public accountant must perform if the statements are not audited. A soliciting corporation whose annual revenues do not exceed $250,000 may waive an audit by special resolution of the members. A non-soliciting corporation may waive an audit if the annual revenues of the corporation do not exceed $1 million.

Revival

The legal restoration of a corporation that has been dissolved and, therefore, ceased to exist as a legal person. Under the CNCA, a revival takes place by filing articles of revival with Corporations Canada, which issues a certificate of revival, generally restoring the corporation to its previous position in law retrospectively as if it had never been dissolved. Under the CNCA, a revival is available if the corporation has been involuntarily dissolved by Corporations Canada but not if it has dissolved voluntarily.

Second Vote

See Casting Vote.

Self-perpetuating Board

Means an NFP organization in which all directors are members and there are no members other than the directors. If a self-perpetuating board structure is adopted, the board is impervious to being overthrown by a dissident group of members.

Separate Class Vote

See Class Vote.

SGM

Abbreviation for special general meeting. See Special Meeting, which is the term used under the CNCA.

Soliciting Corporation

The CNCA provides for certain differential treatment for soliciting corporations and non-soliciting corporations. The basic premise is that NFP corporations that receive public funds (in a broad sense) warrant tighter regulation that those corporations that do not rely on a material level of public funding.

Under the CNCA, therefore, the definition of "soliciting corporation" is based on whether aggregate receipts from a short list of public sources during the corporation's financial period are in excess of $10,000. If the corporation's revenues from public sources exceed $10,000 in, say, 2015 (FY1), the corporation would be a soliciting corporation commencing at its next ensuing annual meeting (held in 2016 or FY2), and ending (unless extended by the corporation's receipt of further revenues from public sources in a subsequent financial period) at the annual meeting held three years later (i.e., at its annual meeting held in 2019 or FY5).

The low $10,000 threshold acts as a kind of de minimus exemption. It filters out very small public benefit corporations and the inadvertent capture of corporations that do not receive significant public funds. The annual period to calculate revenues and their effect on the corporation's status for the ensuing three full financial periods strikes a balance between continuity for an organization over time and flexibility where the corporation's funding sources have permanently changed.

The funding sources that determine whether a corporation is a soliciting corporation are:

  • public donors (more specifically, donors who are not members, directors, officers or employees of the corporation at the time of the funding request or persons who are related by blood, marriage or cohabitation arrangement to these individuals);
  • governments or governmental agencies (whether federal, provincial or municipal); or
  • conduit entities (i.e., other soliciting corporations or entities that have received funds in excess of $10,000 in their previous financial period from these same sources).

The inclusion of conduit entities is intended to capture indirect funding from public sources, i.e. funds received through a conduit that is itself publicly-funded (such as United Way).

The CNCA gives the Director a specific overriding power to designate an applicant to be a non-soliciting corporation if the Director is satisfied that the determination would not be prejudicial to the public interest.

Special Act Corporation

Refers to a corporation that is incorporated under its own federal or provincial statute (including corporations incorporated by Private Act) rather than under a corporation law of general application such as the CNCA or OCA. A Special Act Corporation usually has no shares or shareholders.

Special General Meeting

Abbreviated as SGM. See Special Meeting, which is the term used under the CNCA.

Special Majority

See Super-majority.

Special Meeting

Often still called a special general meeting or SGM. Any business transacted at an annual meeting other than:

  • consideration of the financial statements and the report (i.e., the audit or review engagement report) of the public accountant on the financial statements;
  • re-appointment of the incumbent public accountant; and
  • election of directors,

is special business and makes the meeting of members an annual and special meeting. All meetings of members (other than an annual meeting) are special meetings (which includes a meeting requisitioned by members to remove one or more directors from office).

Special Resolution

Means a resolution passed by not less than two-thirds of the votes cast by members on that resolution. If provided for in the articles or by-laws of a CNCA corporation, an absentee member may vote by proxy or ballot on a special resolution.

If a member does not vote (either because not present in person or by proxy at the meeting or, if attending the meeting, chooses not to cast a vote), his or her vote is not included in either the numerator or denominator in determining whether a two-thirds majority has voted in favour of the resolution. Suppose, for example, that a corporation has 25 members, five of whom are absent from the meeting of members and one of whom attends but abstains from voting on the resolution. The special resolution would pass if 13 of the 19 members who vote on the resolution vote in favour of it.

Under the CNCA, a special resolution may also be passed by resolution in writing signed by all of the members entitled to vote on it (that is, non-voting members are not required to sign the resolution in writing).

Special resolutions are generally required for fundamental changes under the CNCA, such as to authorize most amendments to the articles, most amalgamations, a continuance from the CNCA to the laws of a province, a sale of all or substantially all of the property of the corporation out of the ordinary course of business and a liquidation and dissolution. Unless otherwise required in the CNCA or the articles, the default rule is that business transacted by members is approved by ordinary resolution.

Staggered Board

A board structured so that only a portion of the board retires each year and there is an election to fill the positions of only those retiring. For example, if a board consists of 12 directors, a staggered board structure might have one-third of the board (i.e., four directors) retire at the annual meeting in year one (Y1), another one-third (or four directors) retire at the end of the Y2 annual meeting and the remaining one-third (or four directors) retire at the end of the Y3 annual meeting.

While the CNCA does not require a staggered board, it is an option some NFP organizations voluntarily adopt. It may lessen the turnover on the board and create less potential disruption than the default rule, under which 100% of the board is re-elected annually. A staggered board structure also makes it more difficult for a hostile group of members to take over the entire board at one annual meeting. Under a staggered board structure, a hostile group of members would have to run successful campaigns for two or three consecutive annual meetings to elect a majority of the board of directors.

Statement of Purpose

The articles of a CNCA corporation must set out a statement of the purpose of the corporation. Despite this statement, acts of a corporation outside its stated purpose are not void as ultra vires (or beyond the powers) of the corporation.

Super-majority

The default rule under the CNCA is that resolutions of members and directors are decided by a simple majority (i.e., 50% + 1) of the votes cast on the resolution. Those not voting on the resolution are not counted as part of the numerator or the denominator.

However, there are various exceptions to these default rules. First, the CNCA specifies that certain types of resolutions require a special resolution of the members. These include resolutions to authorize most amendments to the articles, certain amendments of the by-laws, certain amalgamations, a continuance of the corporation under the laws of another jurisdiction in Canada or outside of Canada, a sale of all or substantially all the assets of the corporation outside the ordinary course of the corporation's activities and a liquidation and dissolution of the corporation.

Second, the corporation may provide for a super-majority rule in its articles. The articles may adopt a super-majority that applies to board resolutions as well as to member resolutions. The super-majority approval threshold may be set at a level that is higher (but not lower) than that applicable under the CNCA. As well, it may change the method of calculating the approval threshold so that a resolution requires a special majority of all members (including those who do not vote on the resolution). However, the articles cannot increase the threshold required to remove a director before the expiration of his or her term of office (which is 50% +1 of those voting on the resolution).

A super-majority provision is not effective if it is only set out in the by-laws of the CNCA corporation; it must be set out in the articles. A non-soliciting corporation may, however, provide for a super-majority provision in a unanimous member agreement (and, unlike the articles, a UMA can validly include a super-majority threshold to remove a director before the expiration of his or her term of office).

Term of Office

Used in reference to a director, means the period from appointment or election until the expiration of his or her term. The default rule under the CNCA is that all terms of office expire at the conclusion of the ensuing annual meeting (when the entire board must be elected). However, a term of office can be as long as four years under the CNCA before the director must be re-elected.

If directors are not elected at a meeting of members, the incumbent directors (including a director whose term of office has expired) continue in office until their successors are elected.

Sometimes, an NFP corporation will limit the maximum number of consecutive full terms of office that a director can serve before he or she can stand for election again. This practice is not required under the CNCA or the OCA but is voluntarily adopted in the constating documents of some NFP organizations, partly to allow for fresh blood on the board but also to give directors and candidates a finite commitment and a graceful exit.

Ultra Vires

Means beyond the powers of the corporation. The ultra vires doctrine applies to various statutory or Special Act corporations. However, it does not apply under the CNCA or the OCA and did not apply to corporations formed by letters patent under Part II of the CCA. A CNCA corporation has all the powers and capacities of a natural person (i.e., an adult of full legal capacity).

UMA

Abbreviation for unanimous member agreement.

UMD

Abbreviation for unanimous member declaration. See Unanimous Member Agreement.

Unanimous Member Agreement

Abbreviated as a UMA. Under the CNCA, the members of a non-soliciting corporation may enter into a written agreement that transfers some or all of the powers otherwise vested in the board of directors to the members generally (or one or more of the members). Along with the articles and by-laws, the UMA is one of the constating documents of a CNCA non-soliciting corporation. In the event of an irreconcilable conflict between these constating documents, the UMA ranks first in priority, followed by the articles and, lastly, the by-laws.

As its name implies, all members of the corporation (including non-voting members) must enter into the UMA in order for the agreement to qualify as such. If there is only one member of the corporation, that member can sign a written declaration that is deemed to be a UMA.

The members of a soliciting corporation cannot enter into a valid UMA (although there is no legal impediment preventing the members of a soliciting corporation from entering into a valid voting or pooling agreement).

UMAs are provided for under the CNCA only. Neither the OCA nor the ONCA provide for UMAs.

Unanimous Member Declaration

Abbreviated as UMD. A UMD is deemed to be a type of UMA. See Unanimous Member Agreement.

Winding up

See Liquidation.

No Comments

Leave a comment
Comment Information

Contact The Firm

Bold labels are required.

Contact Information
disclaimer.

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an lawyer-client relationship. Confidential or time-sensitive information should not be sent through this form.

close

Privacy Policy

Contact

Gray, Whitley LLP
400 - 36 King Street E.
Toronto, ON M5C 3B2

Phone: 647-560-3705
Fax: 647-256-6601
Map & Directions

top