Not-for-profit rules will change under Bill 154
By Rob Lamberti, AdvocateDaily.com Contributor
The Ontario government has proposed immediate changes to the rules for not-for-profit corporations, says Toronto corporate lawyer Peter Murphy.
If enacted, the changes will bring some much-needed modernization to the statute governing the sector in the short term, says Murphy, a partner with Shibley Righton LLP.
Bill 154, the Cutting Unnecessary Red Tape Act, 2017, which passed second reading, is an omnibus bill that allows for amendments to various pieces of legislation. It proposes changes to the Ontario Corporations Act that would apply while the sector waits for the new legislation, Ontario Non-for-Profit Corporations Act (ONCA), to come into force, Murphy tells AdvocateDaily.com.
Bill 154 is now before the Standing Committee on Justice.
The ONCA was passed by Ontario's legislature in 2010, but has not yet been proclaimed. Until it is, the Ontario Corporations Act will continue to apply to not-for-profit organizations incorporated in Ontario.
The Act will not be proclaimed until the government completes related upgrades to its administrative technology, says Murphy.
"They advised the sector that at least 12 months' notice will be given before the Act comes into force and that notice has not been given yet," he says.
Once the ONCA is in force, Ontario's existing not-for-profits will have three years to adopt the new legislation. Murphy says the current law will continue to apply during that period as well, making the proposed changes even more welcome.
"These are useful upgrades to the existing statute that continues to apply until we get to the ONCA regime," Murphy says.
A fundamental change proposed in the bill would extend ONCA's objective standard of care for directors to the existing legislation, he explains.
"The new standard would require directors to act honestly and in good faith with a view to the best interests of the corporation and to exercise the care, diligence and skill that a reasonable, prudent person would exercise in comparable circumstances. Until the changes come into effect, a common-law subjective standard of care applies. That standard requires a director to exhibit a degree of skill in his or her duties that may reasonably be expected from a person of his or her knowledge and experience."
The bill would modernize the standard of care for directors in line with modern corporate statutes, says Murphy.
Another change Murphy welcomes is that a director would no longer be required to be a member of the not-for-profit corporation. This would allow for more flexible member structures, he says.
Other proposed changes would allow meetings to be held electronically or by telephone and permit meeting notices to be distributed electronically. While these changes should be welcomed by most Ontario not-for-profits, Murphy says proposed changes for removing a director are even more important.
Under the existing legislation, a director can only be removed if the organization's bylaws allow for it. Even with the necessary bylaw provision, the existing law requires a membership vote of two-thirds to remove a director, Murphy says.
The bill proposes that a majority of the members that elected the director can remove him or her. This lowers the voting threshold and would apply even where an organization's bylaw is silent on the matter, he says.
Murphy says the bill also contains positive changes to audit requirements.
"Currently, every not-for-profit is required to obtain audited financial statements, except where the corporation's annual income is under $100,000 and all the members consent to not having them," Murphy says.
"The change would lower the consent requirement to 80 per cent of the votes cast by members and the annual revenue of the organization would have to be no more than $100,000," he says.
"That's significant. To get 100 per cent of your members to consent is pretty tough — even for small organizations that can't afford an audit. The proposed change would give them 20 per cent wiggle room which would be welcomed, I'm sure, by many of the smaller not-for-profits."