The Canada Not-for-profit Corporations Act permits the members of non-soliciting corporations to enter into a unanimous member agreement ("UMA"). If the corporation has only one member, it may sign a unanimous member declaration ("UMD") that is deemed to be a UMA. As the name makes clear, all members of the corporation (including non-voting members) must be parties to the UMA. A UMA is an otherwise lawful written agreement that restricts the powers of the directors to manage, or supervise the management of, the activities and affairs of the non-soliciting corporation.
1. What Can a UMA do, and When Might it be Used?
A UMA can override many of the provisions of the corporation's articles and by-laws, and the default rules in the Act. It therefore facilitates private ordering, enabling the members to shape most of the rules that apply to the corporation to best suit their needs and those of the corporation.
Some of the ways that a UMA might be used include:
● ensuring that each member has representation on the board of directors and any board committees, including the right to fill a vacancy on the board to replace their nominee;
● providing for super-majority approval at board or membership meetings so that fundamental decisions can only be passed if they receive a specified level of board or membership support. For example, the UMA could give a member the right to veto amendments to the articles or by-laws, or it might restrict the power of the board to charge membership dues without membership approval or admit new members;
● specifying the offices within the corporation, defining their duties and identifying each of the officers;
● re-allocating the division of authority between the board and the membership;
● requiring the reporting of financial or other information in addition to the annual financial statements of the corporation and the audit or review engagement report of the corporation's public accountant; and
● providing for final and binding arbitration of all disputes.
A UMA may also include an amending or termination formula, which enables it to be amended or terminated by less than all of the current members at the time. If the UMA does not otherwise provide for its termination, the members may terminate it by special resolution (which requires the approval of at least two-thirds of the votes cast on the resolution to terminate).
2. When is a UMA Appropriate or Inappropriate?
A UMA is only feasible in the case of a non-soliciting corporation that has a limited number of members. While it is impossible to specify a bright-line figure for the number of members that make a UMA infeasible, the more members there are, the more difficult it becomes to ensure that all members execute the UMA on identical terms. A UMA ceases to qualify as such once it admits a member who is not bound by the UMA. A UMA is also nullified if the corporation becomes a soliciting corporation - which can occur by the contribution to the corporation, by one or more non-members, of more than $10,000 in the corporation's financial year.
3. Are there any Downsides to a UMA?
If the corporation has a UMA in place, its members take on the duties and liabilities of the directors to the extent that the UMA restricts the powers of the directors to manage, or supervise the management of, the activities and affairs of the corporation. Therefore, the immunity from liability of members is, to the same extent, lifted and the members take on liability that would otherwise fall on the directors.
Also, if there is a UMA in place, members cannot use absentee voting (such as proxies or mailed-in or electronic ballots) when exercising any of the authority delegated to them under the UMA.
A UMA can become administratively unwieldy to create and maintain if there are many members. It automatically terminates if the corporation becomes a soliciting corporation or admits members who are not bound by the UMA. Therefore, a UMA may carry a degree of fragility. It is highly breakable if not handled with care.