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Still No Release Date for the Inmates of the Ontario Corporations Act - But the Wait is Made More Bearable

On September 14, 2017, Ontario introduced the Cutting Unnecessary Red Tape Act, 2017 (Bill 154). Bill 154 proposes to make various changes to the Ontario Not-for-Profit Corporations Act, 2010 (the "Unproclaimed Act") and the Ontario Corporations Act (the "Current Act"). However, since the Unproclaimed Act will not come into force before January 1, 2020 (at the earliest), the focus of this article is on the proposed changes to the Current Act.

1. Background

The law governing Ontario not-for-profit ("NFP") corporations clearly remains in transition. The Unproclaimed Act was three-and-a-half years in the making. Despite having been passed in October 2010, it has never been proclaimed. And the Ontario government is on record as stating that it will give two years' advance notice before it is proclaimed in force. Meanwhile, Ontario NFP corporations continue to be governed by a pre-WWI statute (circa 1907).

Since 2011, newly formed NFP corporations in Ontario have had the attractive option of incorporating under the Canada Not-for-profit Corporations Act (the "Federal Act") and thereby completely avoiding the uncertainties in Ontario's rollout of its replacement NFP legislation. Most newly formed NFP corporations in Ontario have flocked to the Federal Act.

Some Ontario NFP corporations have migrated from the Current Act to the Federal Act through a processes called a continuance. However, a continuance is not cheap - especially for charitable corporations who must navigate through various government departments at both the provincial and federal levels, including:

● the Ontario Public Guardian and Trustee, which must first approve the export continuance;

● the Ontario Ministry of Government and Consumer Services, which must authorize the export continuance;

● Corporations Canada (part of Innovation, Science and Economic Development), which must not object to the corporate name and accept the articles of continuance under the Federal Act; and

● the Charities Directorate, Canada Revenue Agency, which must receive copies of the federal corporation's articles of continuance and new by-laws and approve any change in the corporation's purposes.

The cost and other barriers to an export continuance are sufficient to deter many Ontario NFP corporations - especially those with limited resources and little access to qualified legal help. As a result, existing Ontario NFP corporations are the losers - unable to access the efficiencies and other positive benefits that a modern NFP corporate statute would bring to them, at the mercy of the Ontario government's seeming inability to proclaim its 2010 legislation into force, and with no known date for their release.

Therefore, as a way of delivering some of the anticipated benefits of the Unproclaimed Act to Ontario NFP corporations while they wait for proclamation, Bill 154 proposes to make a series of helpful stop-gap amendments to the Current Act affecting NFP corporations. These are described below.

2. Proposed Changes to Ontario Corporations Act

Bill 154 would make the following amendments to the provisions of the Current Act which affect NFP corporations (replicating many of the provisions of the Unproclaimed Act):

(a) Status and Powers of an NFP Corporation

● If a provision of the Current Act or regulations that applies to a charitable corporation conflicts with a law relating to charities, the law relating to charities trumps the Current Act (irrespective of whether the charity law is statutory, common law or equitable).

● The ultra vires doctrine is inapplicable. As would be the case under the Unproclaimed Act, an NFP corporation will have all of the capacity and powers of a natural person. While there is no harm in expressly providing these powers for an NFP corporation, an NFP corporation under the Current Act is incorporated by letters patent. The ultra vires doctrine never did apply to corporations formed by letters patent.

● The rules on pre-incorporation contracts that would apply under the Unproclaimed Act would be extended to NFP corporations under the Current Act.

● As under the Unproclaimed Act, an express "counterparts" provision will be added to the Current Act so that by-laws, resolutions, notices and other corporate documents may be executed in counterpart by more than one person.

● As under the Unproclaimed Act, a corporation may dispose of all or substantially all of its property if approved by special resolution of the members. A special resolution requires the approval of at least two-thirds of the votes cast by members entitled to vote.

(b) Members

● Meetings of members may be held by telephonic or electronic means (without having to amend the corporation's bylaws to provide for it).

(c) Directors

● Directors and officers will be subject to the same statutory duties of loyalty and care as they would be subject to under the Unproclaimed Act.

● Likewise, directors and officers must comply with:

● the Current Act and the regulations made under the Current Act; and

● the corporation's letters patent (or other instrument of incorporation) and by-laws.

● As under the Unproclaimed Act, it will not be possible for directors or officers to contract out of these obligations in the letters patent, by-laws or resolutions of the corporation or in a specific contract to that effect.

● The provision in the Current Act requiring a charitable corporation to comply with the Charities Accounting Act (Ontario) or obtain a court order before purchasing and maintaining directors' and officers' liability insurance will be repealed.

● The corporation, in its by-laws, may opt out of the current requirement that each director be a member of the corporation. Under the Unproclaimed Act, a director would not be required to be a member unless the by-laws expressly mandate it.

● Directors, other than directors by virtue of their office (called ex officio directors), can be removed by simple majority vote of the members entitled to vote, which changes the standard from the two-thirds of the members under the Current Act to match the standard under the Unproclaimed Act. However, this new amendment does not override existing provisions of a corporation's letters patent or by-laws.

(d) Audits

● An NFP corporation whose annual revenues are $100,000 or less can opt out of the requirement to have an audit. As under the Unproclaimed Act, opting-out requires an extraordinary resolution of the members entitled to vote. An extraordinary resolution requires the approval of at least 80% of the votes cast.

3. Concluding Comment

The proposed amendments should be welcome for existing Ontario NFP corporations, who find themselves trapped inside an antiquated, cumbersome, badly out-of-date statute - a fact long acknowledged by the Ontario government in passing the Unproclaimed Act back in 2010. The Bill 154 amendments do not displace the need to replace the Current Act, but should the make the wait less painful for the inmates.

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