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What Happens if Members are Never Properly Admitted?

In Rexdale Singh Sabha Religious Centre v. Chattha (decided in 2006), the Ontario Court of Appeal addressed the situation in which no proper procedure had ever been taken to admit members of a not-for-profit corporation after incorporation, holding that, in such a case, the members consist of the original applicants for incorporation.

1. Facts

Rexdale Singh Sabha Religious Centre, Akal Funeral Home and Sikh Spiritual Centre Toronto were three corporations without share capital incorporated under the Ontario Corporations Act.

Justice Van Melle made an order fixing the memberships of each charitable corporation and ordering that a meeting of members be convened for the purpose of electing new directors.

2. Rulings

As the Court of Appeal noted, the OCA provides that, upon incorporation, each applicant becomes a director and member of the corporation. The default rule under the Corporations Act is that persons may be thereafter admitted to membership by the board of directors.

Here, however, the Court of Appeal found that no proper procedure had ever been taken to change the members of these corporations in accordance with the Act. There was a total failure to comply with the Act. The Court of Appeal did not agree with the application judge's construction of the list of members.

Accordingly, the proper directors and members of each corporation remained the applicants for incorporation of each corporation. The meeting to elect new directors was ordered to proceed on that basis.

3. Key Observations

It is difficult to quarrel with the proposition that, if no members are properly admitted to membership of a corporation after its incorporation, the original applicants for incorporation remain in place as the sole directors and members of the corporation.

However, the clarity of this result becomes obscured with the passage of time and occurrence of events. Consider, for example, a corporation that carries on for many years in the belief that its members have been validly admitted in accordance with the by-laws. Laches may enter the picture to prevent a dissenting member from successfully challenging the admission of members if the challenge is not brought on a timely basis.

It may be possible for a court to require the parties to go back to square one in the early life of a corporation. However, this solution becomes progressively less attractive with the passage of time and occurrence of events, such as past meeting of members that were held without challenge or challenge on a timely basis. Also, if many years have passed since incorporation, the original incorporators may no longer be alive, have legal capacity or be interested enough to take part in passing the torch of governance to new leadership.

While there is no sign of these countervailing factors in Rexdale v. Chattha, they may stand out in other cases and qualify the requirement that the corporation go back to square one in all cases where members have not been property admitted.

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