The Canada Not-for-profit Corporations Act allows each corporation to set out in its articles the classes, or regional or other groups of members (for convenience, called "classes" in this article). If there are two or more classes, the articles must set out the voting rights attached to each class of members. The default rule is that each member is entitled to one vote. However, the articles can provide that a class of member has only those voting rights mandated by the Act. The articles can expand the voting rights or restrictions of a class but are limited in the extent to which they can curtail voting rights.
1. Articles of Amendment to Alter Rights of Classes of Members
Members of a class (the "Protected Class") are entitled to exercise a separate class vote (an "SCV") on a proposal to amend the articles to:
● add, change or remove rights or conditions attaching to memberships of the Protected Class (including to reduce or remove a liquidation preference) or add, remove or change prejudicially voting or transfer rights of the Protected Class (alter rights of the Protected Class);
● increase rights of any other class having equal or superior rights to those of the Protected Class (increase superior rights);
● increase rights of a class of members having rights inferior to those of the Protected Class to make the inferior class equal or superior to the Protected Class (raise inferior rights); or
● exchange or create a right of exchange of all or part of the memberships of another class into memberships of the Protected Class (dilute the rights of the Protected Class).
Each of these SCV rights is unalterable in the sense that the corporation cannot opt out of any of them. However, the corporation can, in its articles, opt out of the following additional SCV rights. But if the corporation fails to opt out in its articles, then the members of the Protected Class are also entitled to exercise an SCV on a proposal to amend the articles to:
● exchange, reclassify or cancel all or part of the memberships of the Protected Class (cancellation of the Protected Class); or
● create a new class having rights equal or superior to those of the Protected Class (creation of a new class).
The ability to opt out of an SCV where an amendment cancels the Protected Class means that, if desired, classes other than the Protected Class can cancel the Protected Class without the consent of any of the members of the Protected Class. The ability to opt out of the SCV where an amendment creates a new class means that, if desired, classes other than the Protected Class hold a trump card over the voting and other rights of the Protected Class.
Approval of an SCV by the Protected Class requires either the unanimous written approval of all members of the Protected Class or the approval of at least two-thirds of the members of the Protected Class casting a vote on the resolution to amend the articles. For greater certainty, a Protected Class has an SCV even if it does not otherwise carry the right to vote.
Members of each amalgamating corporation must approve an amalgamation with another corporation (unless one corporation is a wholly owned subsidiary of the other or both are wholly owned subsidiaries of a common parent corporation). The Act confers an SCV right on the members of a Protected Class of an amalgamating corporation if the amalgamation agreement contains a provision that, if contained in a proposed amendment of the articles, would entitle the member of the Protected Class to an SCV.
3. Extraordinary Sale of All or Substantially All Assets
Members of a corporation must approve the sale, lease or exchange of all or substantially all of the property of a corporation other than in the ordinary course of its activities. The Act confers an SCV on the members of a Protected Class in respect of the sale, lease or exchange if, but only if, the Protected Class is affected by the sale, lease or exchange in a manner different from the members of another class.
4. Liquidation and Dissolution
If a corporation has more than one class of members but no property and no liabilities, it may be dissolved by special resolution of each class of members, meaning that the Protected Class enjoys an SCV. The same applies where the corporation has two or more classes of members and has distributed any money or other property or discharged any liabilities in accordance with the Act.
In other circumstances, the corporation can be voluntarily liquidated and dissolved by special resolution of each class of members (including the SCV of the members of the Protected Class).
5. Export Continuance
Each membership in the corporation carries the right to vote in respect of an export continuance from the Act to the laws of another jurisdiction, whether the membership otherwise carries the right to vote. The Act enfranchises non-voting members. However, it does not provide for an SCV for any class of members.
Because of the possible lack of equivalent protection accorded class members after the export continuance, an SCV right could be explicitly added to protect the class.