Never too late: Ontario’s Not-for-Profit Corporations Act is now in force

Not-fabulously-prompt, but Ontario’s updated not-for-profit law is effective at last.

Nearly 11 years after receiving royal assent, Ontario’s Not-for-Profit Corporations Act, 2010 (ONCA) finally came into force today, October 19, 2021.  The ONCA is substantially similar to the Canada Not-For-Profit Corporations Act which came into force in 2011.  With the ONCA, the Ontario government has now embraced new and modern legislation that should increase the number of charities and not-for-profit organizations deciding to incorporate in Ontario rather than federally. (The Ontario government clearly read our blog from last year where we noted the painfully long limbo status of this Act.)

The ONCA has replaced Ontario’s Corporations Act (OCA) and generally applies automatically to all new and existing Ontario not-for-profit corporations without share capital.  Existing Ontario not-for-profit corporations have a three-year transition period in order to comply with the ONCA.

There are a number of differences between the OCA and the ONCA summarized in guidance published by the Ministry.  Here are some key updates:

Provisions Required in Articles of Incorporation

The ONCA now provides for articles of incorporation to replace letters patent under the Corporations Act as the incorporation document for not-for-profit corporations.  Articles must set out specific information about the corporation and also may set out any provision permitted by the ONCA or other law to be set out in by-laws.  The ONCA now requires any of the following provisions, which under the OCA were permitted to be included in a corporation’s by-laws, to be set out in the articles, to the extent applicable:

• a provision respecting the number of directors of the corporation;
• a provision providing for two or more classes or groups of members;
• a provision respecting voting rights of members;
• a provision respecting delegates made pursuant to section 130 of the OCA; and
• a provision respecting the distribution of the remaining property of a corporation that is not a public benefit corporation on winding up or dissolution.

For existing not-for-profit corporations, their letters patent under the OCA automatically will become articles of incorporation under the ONCA.  If a corporation’s letters patent do not set out any of the above provisions now required to be included in articles, the corporation may, by articles of amendment, amend its letters patent and amend its by-laws to bring them into conformity with the ONCA.

Under the transition provisions in the ONCA, any of the above provisions that are included in a corporation’s by-laws will continue to be valid until articles of amendment are filed to include such provisions in the corporation’s articles.

In other respects, existing not-for-profit corporations generally may continue to rely on their existing letters patent and have until October 19, 2024 to make any amendments to bring them into conformity with the ONCA.  If after October 19, 2024 a provision in an existing not-for-profit corporation’s letters patent is not in conformity with the ONCA, the provision will be deemed to be amended to the extent necessary to bring it into conformity.

New Standard Organizational By-Law

Under the ONCA, unless the articles or the by-laws otherwise provide, directors may make by-laws regulating the activities and affairs of the corporation, except in respect of matters required to be included in the articles.  For new not-for-profit corporations if the directors do not pass an organizational by-law within 60 days after the date of incorporation, the corporation will be deemed to have passed a standard organizational by-law in the form approved by the Ministry.

Existing not-for-profit corporations generally may continue to rely on their existing by-laws and have until October 19, 2024 to make any amendments to bring them into conformity with the ONCA.  Except for the specific provisions noted above which now are required to be included in articles and not in by-laws, if after October 19, 2024 a provision in an existing not-for-profit corporation’s by-laws is not in conformity with the ONCA, the provision will be deemed to be amended to the extent necessary to bring it into conformity.

Other Updates

The ONCA distinguishes between not-for-profit corporations which are “public benefit corporations” and other not-for-profit corporations. A “public benefit corporation” is defined as (i) a charitable corporation or (ii) a non-charitable corporation that receives more than $10,000 in a financial year, either in the form of gifts or donations persons other than its members, directors, officers, and employees, or in the form of grants or other government financial assistance.  The ONCA provides for different treatment of public benefit corporations – for example, not more than one-third of the directors of a public benefit corporation may be employees of the corporation or any of its affiliates.

Other updates include:

• The ONCA allows for a corporation to undertake a review engagement of its financial record rather than an audit in some circumstances. In other situations, neither an audit nor review engagement will be required.
• The ONCA clarifies rules for governing a corporation and increases accountability of directors. Under the ONCA, there are more specific requirements for directors and officers to report a conflict of interest in certain circumstances. There are also some enhancements to members’ rights, and specific actions they can take if they believe directors and officers are not acting in the corporation’s best interest.
• The ONCA gives members greater access to the financial records of their corporation.

Key Takeaways

Existing not-for-profit corporations should review the Ontario government’s guidance and their incorporation and other documents to determine any updates to these documents that may be necessary or desirable to avoid the inconsistency and confusion that may result from the application of the above deeming provisions.  Amendments can be approved any time before October 19, 2024 by the board or members at regularly scheduled annual meetings, as required.