May 22, 2010

Official Notice of Fee Proposal For Services under the Canada Not-for-Profit Corporations Act (CNCA)

Here is the “Official Notice of Fee Proposal For Services under the Canada Not-for-Profit Corporations Act”.  This notice which is required under the User Fee Act gives the public and idea of what fees are proposed for the CNCA - these may or may not be the final .  Nothing looks too out of the ordinary.  Perhaps a $40 fee for non-electronic filing of the annual return is a little much - but then again I think the message these days is do it electronically.  One thing that this process raised for me - if you are a federal non-profit (whether charitable or not) you pay all these fees to Industry Canada for the benefit of having incorporated federal non-profit status but why is it that you don’t have to pay any fees to the Charities Directorate when you apply for charitable status or for almost any other services they provide? 

The US IRS charges $850 to apply for 501(c)(3) status which is similar to our registered charity status?  Most of the time when you don’t pay for something you don’t appreciate the value of it.  Perhaps charging a fee for charitable registration, like $200, would make some organizations think more carefully about applying and the obligations of being a registered charity.  Also the funds could be ploughed back into improving the operations of the Charities Directorate - everything from reviewing applications, having consultations and providing guidance on issues affecting charities, answering charity inquiries and going after scam charities, etc. 

http://www.ic.gc.ca/eic/site/cd-dgc.nsf/eng/cs04533.html

Notice from the Director - Official Notice of Fee Proposal
PDF version (13.8 KB, 1 page)
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May 10, 2010

Official Notice of Fee Proposal
For Services under the Canada Not-for-Profit Corporations Act

Corporations Canada wishes to inform you that the official notice on the fees proposed under the Canada Not-for-Profit Act (Bill C-4) and the associated service standards has been published in the Canada Gazette, Part 1 on May 8, 2010.

Bill C-4 received Royal Assent on June 23, 2009. Consultations on the proposed fees and services standards were held from January 4 to February 5, 2010. The Official Notice of Fee Proposal is a required step under the User Fees Act to allow stakeholders to submit official complaints. Complaints may be resolved by an independent review panel. Once all complaints are resolved, the proposed fees will be tabled in the House of Commons and Senate for 20 sitting days for review. Once the User Fees Act process is complete, the proposed regulations which include the fees will then go through the regulatory process. This process involves pre-publication of the proposed regulations in the Canada Gazette, Part I before final approval can be obtained from Treasury Board.

You can obtain the Official Notice of Fee Proposal for Services under the Canada Not-for-Profit Corporations Act :

•on the Corporations Canada’s Website under the heading “What’s New” in the left hand menu;
•on the Canada Gazette website at http://www.gazette.gc.ca
•by contacting Corporations Canada directly at 1-866-333-5556 to obtain a copy by mail.
Comments on the proposed fees or service standards may be submitted to Corporations Canada by May 28, 2010. For further information, call 1-866-333-5556 or send an e-mail to .(JavaScript must be enabled to view this email address).

Aissa Aomari
Acting Director General

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http://www.ic.gc.ca/eic/site/cd-dgc.nsf/eng/cs04534.html

Official Notice of Fee Proposal For Services under the Canada Not-for-Profit Corporations Act
PDF version (31.79KB, 3 pages)

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May 8, 2010

Purpose
This Official Notice of Fee Proposal is one of the steps required by the User Fees Act in order to set fees for services under the new Canada Not-for-Profit Corporations Act. Interested persons have 20 days following the publication of this notice in the Canada Gazette, Part I, to make an official complaint regarding the proposed fees and service standards.

Background
The Canada Not-For-Profit Corporations Act received Royal Assent on June 23, 2009. This Act will replace the Canada Corporations Act and provides a modern corporate governance regime for federal not-for-profit corporations. Before the NFP Act can come into force, the fees have to be first established in accordance with the process set out in the User Fees Act after which the regulations must then be approved by the Governor-in-Council.

Consultations on the proposed fees were held from January 4 to February 5, 2010.  Two comments were received. The first one stated that the proposed fees, costing methodology and service standards were fair and reasonable. The second one also supported the fee proposal and service standards.

Proposed Fees and Service Standards
The fees below are proposed for the services under the new Canada Not-for-Profit Corporations Act.

Receipt, Acceptance, Examination, Issuance or Copying of any Document and Other Actions under the Canada Not-for-Profit Corporations Act
 

Fee
Service Standards
Application sent to the Director for the following documents:
 
 
(a) a certificate of incorporation under section 9:
 
 
i) if the application is made using Industry Canada’s online incorporation feature (when available)
$200
  24 hours
ii) if the application is made using any other means
$250
5 business days
(b) a certificate of amendment under section 201 or subsection 215 (5)
$200
5 business days
(c) a restated certificate of incorporation under subsection 203(3) (unless issued with a certificate of amendment)
$50
5 business days
(d) a certificate of amalgamation under subsection 208(4)
$200
5 business days
(e) a certificate of continuance under subsection 211(5) (unless subsection 212(6) applies)
$200
5 business days
(f) a document evidencing satisfaction of the Director, as required under subsection 213(1)
$200
5 business days
(g) a certificate of arrangement under subsection 216(6)
$200
5 business days
(h) a certificate of revival under subsection 219(3)
$200
5 business days
(i) a certificate of revocation of intent to dissolve under subsection 221(11)
$50
5 business days
(j) a corrected certificate under subsection 288
$200
20 business days
Application sent to the Director for issuance of a certificate of compliance under subsection 290(1)
$10
1 business day
Application sent to the Director for issuance of a certificate of existence under section 290
$10
1 business day
Receipt of an annual return sent to the Director under section 278:
 
 
(a) if the annual report is filed using Industry Canada’s online incorporation feature (when available)
$20
N/A
(b) if the annual return is filed using any other means
$40
N/A
Application for exemption sent to the Director under subsection 2(6), 25(1), 25(2), 104(3) or 171(2), or section 173 or 271
$250
30 days
Provision by the Director of copies of documents under subsection 279(2)
$1 per page
1 business day or 6 business days for inactive corporations
Provision by the Director of certified copies of documents under subsection 279(2), per document
$35
1 business day or 6 business days for inactive corporations

Notes:

1.No fee will be charged for an application for a certificate of amendment if the only purpose of the amendment is to add an English or French version to the corporation’s name, or to replace a corporate name that the Director has directed to be changed under subsection 13(2).
2.No fee will be charged for a certificate of dissolution issued under subsection 220(5) or 221(15) nor for a certificate of intent to dissolve issued under subsection 221(5)
3.No fee will be charged for a corrected certificate issued under section 288 where the correction is required solely as the result of an error made by the Director.
Official Notification Period
The period within which complaints may be submitted begins on May 8, 2010 and ends on May 28, 2010.

Complaint Process
An official complaint may be made to Corporations Canada by email, fax or mail. Corporations Canada will attempt to resolve any complaints received and provide a proposed resolution in writing. If a complaint cannot be resolved to the complainant’s satisfaction within 30 days of the expiry of Official Notification Period, the complainant may make a request in writing that Corporations Canada refer the complaint to an independent advisory panel.

The User Fees Act stipulates that the regulating authority and the complainant must each select one member to sit on the panel and those members must select a third member within 40 days of the expiry of the Official Notification Period. The panel must, within 30 days after all members have been selected, send a report in writing of its findings and recommendations for resolving the dispute to the regulating authority and the complainant.

The panel has the power to award costs of the proceedings, including the cost of the fees and expenses of panel members. If, in the opinion of the panel, a complaint is frivolous or vexatious, the complainant bears all the costs.

Contact Details
Corporations Canada
Jean Edmonds Towers South
365 Laurier Avenue West
Ottawa, ON K1A OC8
E-mail: .(JavaScript must be enabled to view this email address)
Fax : 613-941-5781

Supporting Documents
For more information on how the fees were determined, you may wish to refer to the consultation documents which are available on the Corporations Canada website at http://www.corporationscanada.ic.gc.ca.

It is also possible to obtain a paper copy by communicating with Corporations Canada at 1-866-333-5556.

Corporations Canada
Industry Canada

 

March 30, 2010

Objects and Activities of Canadian charities - CRA discusses importance when registering charity

The CRA discusses questions including 1.What is meant by broad and vague objects? 2.What is the problem with broad and vague objects? 3.Is there a way to keep our objects broad and still be eligible for registration as a charity? 4.What is the difference between purposes (or objects) and activities? 5.Why are purposes and activities important?  6.What is “sufficient” information?

http://www.cra-arc.gc.ca/chrts-gvng/chrts/pplyng/cpc/fq-eng.html
Questions and answers about objects and activities.  Note that the words purposes and objects are used interchangeably. Both refer to the goals, aims, or objectives of a charity.

1.What is meant by broad and vague objects?
2.What is the problem with broad and vague objects?
3.Is there a way to keep our objects broad and still be eligible for registration as a charity?
4.What is the difference between purposes (or objects) and activities?
5.Why are purposes and activities important?
6.What is “sufficient” information?

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1. What is meant by broad and vague objects?

Broad and vague objects may be unclear in their scope or in their intent.

Broad objects are often expansive and do not always express a direct or tangible charitable benefit. They can permit both charitable and non-charitable activities. Examples of broad objects are: “To foster an appreciation of the English language”; “To end homelessness”; and “To fight poverty.”

Vague objects are ambiguous and can be interpreted in many different ways. They leave us guessing about the true intentions of the organization. Examples of vague objects are: “To help the deserving”; “To encourage participation in the community”; and “To foster support of the challenged.”

2. What is the problem with broad and vague objects?

We cannot register an organization that has been established with vague objects, or with a mix of broad and vague objects, because it is impossible for us to determine if the organization is established for charitable purposes.

Many organizations state their objects in a way that will allow them the greatest degree of flexibility. However, to be eligible for registration as a charity, an organization must be established with objects that are restricted to the realm of charity as recognized by law. The objects must be expressed in clear terms that limit the scope of the organization’s activities.

3. Is there a way to keep our objects broad and still be eligible for registration as a charity?

Yes. In some cases, an object may be broadly worded but still restrict the applicant to charitable pursuits, for example, “To relieve poverty through charitable means.” In these cases, we can accept the object if the applicant has, in its application, provided us with a complete and clear statement of its current and proposed activities, and those activities are exclusively charitable. For more information on and examples of broad objects, see Policy Statement CPS-004, Applicants with Broad Object Clauses.

We have developed model objects that are acceptable for organizations seeking to become registered as charities. If you choose objects from this list, the activities of the organization must bear a relationship to the selected objects and be a reasonable means of achieving them.

4. What is the difference between purposes (or objects) and activities?

The difference between purposes and activities is often unclear.

A purpose or object is something that one strives toward or the reason that something exists. Dictionaries define purpose or object as intention, intent, goal, end, aim, or objective. To be eligible for registration, an organization must be established for a charitable purpose or purposes. Charitable purposes are those that are recognized by the courts as charitable. Examples of charitable purposes are: “To relieve conditions related to poverty”; “To educate children”; and “To advance the Christian faith.” For more information on and examples of acceptable purposes or objects, see Model objects.

An activity is defined as an action or a collection of actions. In terms of a charity, it is what a charity actually does day-to-day and over time. To be eligible for registration, an organization must carry on charitable activities that fulfill its charitable purpose(s) or object(s). Examples of charitable activities are: “Operating a food bank”; “Establishing and maintaining a school”; and “Building a church.”

5. Why are purposes and activities important?

When we review an application for registration, we look at the organization’s purposes and activities; both are equally important. An applicant with charitable purposes but lacking a clear description of its charitable activities will be denied registration. Similarly, an applicant with clearly charitable activities but that is not established for exclusively charitable purposes will also be denied. Furthermore, an applicant’s activities must relate to its purposes. If they do not relate, the application will be denied.

Many applicants for registration simply repeat their objects when they describe their activities. An applicant that simply re-states its purposes when describing its activities will have its application returned to it as incomplete. To be eligible for registration, an applicant must provide a thorough and complete description of its current and future activities (including income and expenses), showing what it will do, or what it hopes to do, to fulfill its charitable purposes. For more information, see Describing your activities.

6. What is “sufficient” information?

When we ask for “sufficient” information, we want a complete description of your organization and its activities. This detailed information allows us to properly evaluate your application and determine if your organization is eligible for registration. If an organization fails to provide sufficient information about itself, its registration may be denied.

Some applicants do not include enough information about how their organization is structured. Other applicants do not include a complete description of their current and planned activities or simply re-state the organization’s purposes instead of completely describing its activities. You should describe, in detail, the charitable activities your organization will carry on itself and/or provide details of the resources (financial, physical, or material) that it intends to make available to qualified donees to assist those organizations.

January 15, 2010

BC Society Act review in 2010 - comments requested by April 2010

Here is a link to a PDF document from the BC Ministry of Finance on the BC Society Act Review http://www.fin.gov.bc.ca/society_act_review.pdf  The document raises a number of important policy issues with non-profit corporate law that may be of interest to even those outside of BC.

Ministry of Finance   Office of the Deputy Minister   Society Act Review

December 2009
Message from the Deputy Minister of Finance
The Ministry of Finance is embarking upon a policy review of British Columbia’s Society Act, the statute that provides rules for the registration and corporate governance of not-for-profit entities.
The purpose of the Society Act review is to identify and address any legislative obstacles that may prevent societies from functioning fully and efficiently, and ensure that the public interest is being protected. We are seeking your input on any problems, gaps, inconsistencies or ambiguities in the Society Act and any reforms you would like considered.
This review forms part of the Ministry’s ongoing revision of important framework statutes in the corporate, commercial, real estate and financial services sectors. In recent years this process has resulted in several pieces of new or revised legislation.
There are over 26,000 societies registered in the province, ranging in size from small community-based organizations to large charitable foundations. Societies are engaged in a wide variety of endeavours. They are increasingly involved in providing social services, including medical services and housing, and are often the entity of choice for incorporated community groups, such as sports or cultural organizations.
Although the Society Act has occasionally been amended (most notably in 2004 to streamline filing requirements for societies), it is outdated and in need of revision. There has been no revision of the Society Act since 1977. Other corporate statutes, such as the Business Corporations Act (BCA), which governs companies, and the Cooperative Association Act (CAA), which governs cooperatives, have been completely rewritten within the last decade.
There is considerable interest in updating the legislation. The Ministry is indebted to the British Columbia Law Institute for its extensive work on this issue, which culminated in a 2008 report recommending a new Society Act modelled on the BCA. As well, there have been recent revision projects pertaining to not-for-profits in other Canadian jurisdictions, including the passage of new federal legislation just a few months ago.

The Issues
Two fundamental structural issues regarding the Act have already been raised. The first concerns the nature of the corporate model most appropriate for societies and whether a more sophisticated business law framework should be adopted.
The lack of up-to-date corporate governance rules has been identified as a barrier to the efficient functioning of societies. For example, societies are currently required to have three directors (one of whom must be resident in the province), and directors can only be indemnified with the approval of the court. While these extra controls may be appropriate for certain types of societies (e.g. charities), societies that are not recipients of public money perhaps need not be so constrained. Other corporate statutes have moved toward greater streamlining and flexibility in these areas. For example, the BCA requires only one director (with no residency requirement) and indemnification of BCA directors no longer requires a court order. As well, the BCA’s modern framework for corporate reorganizations and other fundamental changes is not available to societies.
One option would be to model a new Society Act after the BCA. The BCA corporate law framework is exhaustive and complex, and may be especially appropriate for larger, more sophisticated societies. However, many societies are community-based “grassroots” organizations that rely entirely on volunteer boards of directors for their administration. Given this context, an alternative approach might be to adopt more straightforward provisions akin to those in the CAA, or even to develop a new set of simplified rules specifically designed to meet the needs of societies. The Ministry is also aware that there have been calls for a whole new framework to enable a “hybrid” type of organization for not-for-profits engaged in socially-beneficial, profit-generating businesses.
The second fundamental issue concerns the extent to which the Act should contain regulatory provisions or other rules that constrain the operation of societies. Most corporate statutes are non-regulatory in nature—that is, they merely provide a framework for incorporation, governance and dissolution, and contain few, if any, provisions that purport to regulate or control the composition or activities of the corporations created. The Society Act, however, contains a number of regulatory provisions, including the following:
•tighter accountability controls—for example, a society must have three directors (as opposed to one director for private companies under the BCA) and must make its financial statements available to the public. There is no ability to waive financial statements (as there is for private companies under the BCA);
•provisions allowing the registrar to order a particular society (or class of society) to become a “reporting society”, which then triggers greater accountability requirements—for example, a reporting society must provide audited financial statements to its members;
•special rules regulating societies that exist for educational, religious, poverty-relief, community or other “charitable purposes”—a society with such purposes cannot abandon those purposes or convert to a company, and may not, on dissolution, distribute its assets to its members; and
•ministerial investigations of societies that do not act in the public interest.

One option would be a move away from government regulation of societies. The extra controls that apply to societies could be replaced with self-enforcement tools for members. This approach is consistent with the trend under other corporate statutes, and also with the 2004 amendments to the Society Act (removing both the Registrar’s responsibility to review submitted bylaws and societies’ obligation to file annual financial statements). With respect to societies obtaining public funds, it can be argued that there is already sufficient regulatory oversight provided by the federal government (through its charitable tax status requirements) and through the requirements imposed by government and other funders under grant application processes.
Another approach would be to maintain, or even enhance, strict regulatory controls for some types of societies, such as those that solicit public funds. In this area, it can be argued that tighter regulation—in particular in the area of financial disclosure and the reporting of directors’ conflicts of interest—and expanded government investigation powers, are justified.
In addition to the two fundamental structural issues discussed above, a number of other more specific issues have been identified for further analysis. These include improved dispute resolution processes for societies, new mechanisms to allow for electronic filings and communications for societies, and new rules respecting the personal liability of directors of societies. It is anticipated numerous further issues will be identified through this public consultation process, and your input in this area is expressly sought.

The Process
The Society Act review will likely consist of a number of consultation phases. In this first phase, our goal is to identify issues, priorities and objectives, and to explore possible structural frameworks. Following these initial consultations, it is anticipated that a discussion paper inviting more focussed public comment on specific issues and options will be published.
You are invited and encouraged to participate by commenting on the issues discussed above or other problems there may be with the current legislation. As our intention is to solicit as much input as possible, please invite others who may wish to contribute to do so. The deadline for feedback is April 1, 2010, to enable the Ministry to proceed with the next phase of the review.

Comments may be transmitted electronically to: .(JavaScript must be enabled to view this email address)
However, if you wish to send comments in paper format, please direct them to:
Financial and Corporate Sector Policy Branch
Ministry of Finance
PO Box 9418 Stn Prov Govt
Victoria BC V8W 9V1
(Phone 250-387-1269)
Please note that the Ministry will be sharing comments it receives with the Corporate Registry of the Ministry of Citizens’ Services, and others. Even where confidentiality is requested, freedom of information legislation may require the Ministry to make responses available to those requesting such access.
Thank you for your participation in this important review.
Sincerely,
Graham Whitmarsh
Deputy Minister

December 01, 2009

Transitioning from the Canada Corporations Act to the New Canada Not-for-profit Corporations Act

After the new Canada Not-for-profit Corporations Act comes into force (probably around 2011) Canadian federal charities under the Canada Corporations Act that wish to continue existing will have a further three years to continue (essentially to covert) under the new Canada Not-for-profit Corporations Act

For further information see a paper entitled Insight on C-4, the New Canada Not-for-profit Corporations Act By: Wayne Gray, Partner, McMillan LLP, Toronto. http://www.mcmillan.ca/waynegray

“VII.  TRANSITIONING TO THE NEW ACT
Once the New Act comes into force, it will no longer be possible to incorporate an NFP corporation under Part II of the CCA.  Rather, all new federal NFP corporations will be formed under the New Act.
If a body corporate governed by Part II of the CCA does not apply for a continuance within 3 years after s. 297(5) of the New Act comes into force, Corporations Canada may, upon first giving notice in writing to the body corporate and to each director, dissolve that body corporate.

To continue under the New Act, a CCA body corporate will need to file articles of continuance under s. 211.  The content of the articles of continuance parallels that of the articles of incorporation described at Part IV.1 above.  In addition, an NFP body corporate formed under provincial or territorial law may apply to Corporations Canada for a certificate of continuance under s. 211 if so authorized by the laws of its home jurisdiction.”

Can a Canadian charity under the new Canada Not-for-profit Corporations Act have no members?

No.  The new Canada Not-for-profit Corporations Act requires that corporations have members however the board of directors and the members can be identical as is often the case with Canadian charities.

For further information see a paper entitled Insight on C-4, the New Canada Not-for-profit Corporations Act By: Wayne Gray, Partner, McMillan LLP, Toronto. http://www.mcmillan.ca/waynegray

In that paper he discusses self-perpetuating boards

“Q8. Does the New Act Allow Self-Perpetuating Boards?  Answer:  Yes; but the New Act does not permit a CNCA corporation to entirely dispense with members.

To again underscore the flexibility of the New Act, it is clearly possible for a corporation to have a completely self-perpetuating board, i.e., a membership that consists entirely of board members.  First, the Act imposes no limits on who may be a member.  Second, s. 126(1) imposes limited qualifications on who can validly be a director.  Thus, a director must be an individual who is at least 18 years of age, not an undischarged bankrupt and not found by a court to be incapable.  Ergo, a director can be a member.  In effect, the same individual or small group of individuals may be both members and directors (provided that all individuals meet the limited directorship qualifications set out in s. 126(1)). 

This arrangement has the practical effect of obliterating the distinction between members and directors, except to the extent that corporate formalities (such as the approval of articles and certain by-law amendments) must be observed.  The same individuals can wear two different hats but will have to be mindful of which hat is worn at a particular meeting.  A director’s hat is inappropriate attire for a member’s meeting, and a member’s hat should not be worn at a board meeting.”

November 30, 2009

Will the New Canada Not-for-profit Corporations Act limit foreign activities by Canadian charities?

I am not even going to try to answer this issue.  I tried before to deal with Subsection 16(3) and got the answer wrong.  I am excerpting a piece from a paper entitled Insight on C-4, the New Canada Not-for-profit Corporations Act By: Wayne Gray, who is a partner at McMillan LLP, Toronto. http://www.mcmillan.ca/waynegray to answer the question.

“V.  FAQ
Q1: Is the New Act Effective to Abolish the Ultra Vires Doctrine?  Answer: Yes.

Subsection 16(3) of the New Act provides that:

A corporation has the capacity to carry on its activities, conduct its affairs and exercise its powers in a jurisdiction outside Canada to the extent that the laws of that jurisdiction permit.
Some have seen this provision as problematic for those federal NFP corporations operating in foreign countries.

However, the concern appears to be groundless.  Section 16 of the CNCA is identical to s. 15 of the CBCA.  Sections 15 and 16 of the Business Corporations Act (Ontario) (the “OBCA”) are to the same affect.  As well, s. 15 of the Saskatchewan Non-profit Corporations Act, 1995 (the “Saskatchewan Act”) is substantively to the same effect.  While the provision is new for federal NFP corporations, the same provision has existed for many years in the CBCA and all of the federal, provincial and territorial statutes modelled on the CBCA nary a hint of a problem.

The Dickerson Committee clearly intended to abolish the ultra vires doctrine through what ultimately became s. 15 of the CBCA.  Professor Peter Cumming (as he then was) intended the same in his 1973 Proposals for a New Not-for-profit Corporations Law for Canada.  Section 15 of the CBCA, and its OBCA counterpart, were considered by the Supreme Court of Canada in Communities Economic Development Fund v. Canadian Pickles Corp.,  where Iacobucci J., writing for a unanimous court, held that the ultra vires doctrine had been abolished by s. 15 for corporations that incorporate under the CBCA (and by ss. 15 and 16 for corporations that incorporate under the OBCA).  There was no suggestion in Canadian Pickles that s. 15(3) of the CBCA qualifies the abolition of the ultra vires doctrine in any way, keeping the doctrine alive for business or activities conducted outside of Canada or automatically transforming all corporate acts that breach a foreign law into an ultra vires act under domestic law.

The simple purpose of s. 16(3) is to codify cases such as Bonanza Creek Gold Mining Co. v. R.  In Bonanza Creek, the Judicial Committee of the Privy Council stated that, in the absence of express legislative restrictions, a provincially-incorporated corporation may accept powers and rights conferred on it by authorities outside of its incorporation jurisdiction.  Laws of a host foreign jurisdiction can always limit the powers exercisable in that jurisdiction by a federal, provincial or territorial corporation.  Extrapolating Bonanza Creek, a CBCA corporation or a CNCA corporation should be able to accept powers and rights conferred on it by authorities outside of Canada in the absence of express legislative restrictions to the contrary.

Even on a plain reading, s. 16(3) is enabling, not disabling.  It contains a positive statement of the corporation’s capacity to operate outside of Canada.  It does not in any way negate the capacity conferred by s. 16(1), which the Supreme Court has held to be sufficient to abrogate the ultra vires doctrine.  Despite s. 16(1) of the New Act, it is possible for a host foreign law to prohibit or restrict a federal NFP corporation from operating within the host jurisdiction.  Canadian corporate capacity cannot trump the application of foreign law.

By the same token, the ultra vires doctrine is purely a function of the domestic law that governs a corporation.  Foreign law can make a corporate act illegal but not ultra vires.

In any event, s. 17(3) of the New Act also has potential application.  It reinforces that the legislative intent of the New Act is enabling - specifically that a mere contravention of the New Act does not result in a declaration of invalidity.  The CBCA formulation for abolition of the ultra vires doctrine has withstood judicial scrutiny at the highest level.  It would have been counterproductive to undermine this certainty by tinkering with the legislative formulation for abolishing the ultra vires doctrine in the New Act.”

When will the new Canada Not-for-profit Corporations Act come into force and we can start using it?

The New Canada Not-for-profit Corporations Act while passed has not come into force yet.  The experts best guess (see Wayne Gray below) is early 2011 for it coming into force.

“The sector’s plea for a modern NFP corporate statute has finally been answered.  On June 23, 2009, Bill C-4, the Canada Not-for-profit Corporations Act (interchangeably, “New Act” or the “CNCA”), received Royal Assent.  The unofficial best estimate as to when the New Act will come into force is early 2011.  The coming into force of the New Act should be welcome news for the more than 17,000 federal NFP corporations that will soon be able to continue to the New Act and the many more provincial/territorial NFP corporations that will have the option of moving to the New Act under its voluntary continuance provisions.”  from a paper entitled Insight on C-4, the New Canada Not-for-profit Corporations Act By: Wayne Gray, Partner, McMillan LLP, Toronto. http://www.mcmillan.ca/waynegray

June 30, 2009

New Federal Canada Not-for-profit Corporations Act Receives Royal Assent June 23, 2009

The new Canada Not-for-profit Corporations Act has just received royal assent on June 23, 2009.  The act has yet to be proclaimed in force and it will come into force on a day or days to be fixed by order of the Governor in Council.  It is difficult to know when the bill will come into force. It could be 3-6 months or it could be a year or more.  Industry Canada will have a lot of work to do with the regulations, forms, fees etc.  Once the act comes into force current Canada Corporations Act corporations will have 3 years to continue into the new act assuming that no change or extension is made to the act.  There will be a lot of material prepared by non-profit associations as well as professional advisors and others to assist CCA corporations with the transition.  It makes little sense for most CCA non-profits to start worrying about this act until there is greater clarity and more time has elapsed. 

Also, as more material is prepared by Industry Canada, non-profit associations and others it will be easier to grapple with the issues.  If a CCA corporation is a charity and wants something to worry about now they may want to spend some time on the CRA website to try to understand whether the charity is complying with its obligations under the Income Tax Act.  Also you may find my article Top Ten Charity Law Issues helpful at http://www.globalphilanthropy.ca/images/uploads/Top_Ten_Canadian_charity_law_issues.pdf

Here is some information on the bill including the full text: http://www2.parl.gc.ca/Sites/LOP/LEGISINFO/index.asp?Language=E&query=5653&List=toc&Session=22

 

April 29, 2009

Bill C-4, An Act respecting not-for-profit corporations - moves forward

The Standing Committee on Industry, Science and Technology presented a report on the Bill C-4, An Act respecting not-for-profit corporations and certain other corporations and has suggested a number of amendments.  Here is the report http://www2.parl.gc.ca/HousePublications/Publication.aspx?DocId=3821518&Language=E&Mode=1&Parl=40&Ses=2  Here is the slightly revised bill at:
http://www2.parl.gc.ca/HousePublications/Publication.aspx?DocId=3829002&Language=e&Mode=1

Mark Blumberg is a lawyer at Blumberg Segal LLP in Toronto, Ontario.  He can be contacted at .(JavaScript must be enabled to view this email address) or at 416-361-1982. To find out more about legal services that Blumbergs provides to Canadian charities and non-profits please visit http://www.canadiancharitylaw.ca or http://www.globalphilanthropy.ca

This article is for information purposes only. It is not intended to be legal advice. You should not act or abstain from acting based upon such information without first consulting a legal professional.

March 20, 2009

Canada Not-for-profit Corporations Act - Fourth Time Lucky? Will Canada get a new fed corporate law?

The Canadian parliament is once again considering passing the Canada Not-for-profit Corporations Act.  If it is passed it will affect 19,000 Canadian federal corporations that are incorporated under federal law.  The Bill is currently in the Industry, Science and Technology Committee. 

Here is the first reading of the bill.

http://www2.parl.gc.ca/HousePublications/Publication.aspx?Language=E&Parl=40&Ses=2&Mode=1&Pub=Bill&Doc=C-4_1

If you actually want to understand what the bill in plain language then you might find this interesting:
http://www.parl.gc.ca/LEGISINFO/index.asp?Language=E&query=5653&Session=22&List=ls

Here are some speeches on the draft bill that you may find interesting:

Sponsor’s Speech at Second Reading (Diane Ablonczy, the Minister of State for Small Business and Tourism)
http://www2.parl.gc.ca/HousePublications/Publication.aspx?Mode=1&Parl=40&Ses=2&Language=E&DocId=3645216&File=0#SOB-2582125

She likes the Bill she introduced!  She thinks that it is an improvement over what we have “The not-for-profit sector has repeatedly said that the current statute no longer meets its needs. For example, under the current statute, the incorporation process is slow and cumbersome. There are no provisions for amalgamating two or more corporations. There are no provisions for modern communications technologies. Financial accountability and transparency is inadequate. Directors do not have adequate defences against unwarranted liabilities. Members have few rights, and the list goes on.” 

Hyperbole Alert: “Bill C-4 springs from the need to replace an 18th century piece of legislation with a modern framework that reflects the imperatives of the Canadian economy’s diversity and the changes that have come about in recent years. It directly addresses these issues, and what is more, provides a solid basis on which healthy, dynamic, well-run not-for-profit corporations may flourish.”  It was a 1917 act, not 18th century. To imply that the Canadian government does not care about non-profits and would wait 120 years to revamp the act is unfair.  They only waited 92 years. Also Minister Abloncy I hope you have something more up your sleeve - this Act by itself does not “provide[s] a solid basis on which healthy, dynamic, well-run not-for-profit corporations may flourish”.  Except for a corporate or charity lawyer in a field of dreams this Act will have only a minor benefit to non-profits and unfortunately it may take 10-15 years to really see the benefit.  In the first 5 years the amount of time, distraction, resources, effort to convert etc will probably do more to promote the corporate legal bar and assorted consultants than actually improve the capacity of charities.  It is a nice try but I hope that the government will not consider that it has done its bit by passing this legislation.  It is, minus a few concerns, a positive piece of legislation but it is not a panacea to the many problems undercutting the charitable sector. 

Liberal Speech at Second Reading - Mr. Marc Garneau (Westmount—Ville-Marie, Lib.) 
http://www2.parl.gc.ca/HousePublications/Publication.aspx?Mode=1&Parl=40&Ses=2&Language=E&DocId=3655358&File=0#SOB-2588256
His comments defy gravity.  Ok no more astronaut jokes.  He likes the bill ” If passed, Bill C-4 will implement new rules on financial reporting based on the organization’s annual revenue and sources of funding, new rules on standard of care for directors and new rules for direction liability, new rules that permit written resolutions in place of meetings and allow corporations to avail themselves of technological advances, also new rules permitting members access to certain information to monitor director activities and enforce their rights within the organization and a streamlining of the incorporation process and a reduction in the regulatory burden for the not for profit sector.”
Hyperbole Alert: ” In other words, with this new bill, the sometimes endless and often complicated incorporation process will be streamlined and simplified.”  Are you kidding me, there are 19,000 federal non-share capital corporations.  Yes you have to wait 20 business days to get an incorporation under the current Canada Corporations Act (CCA) but that is nothing compared to waiting one year for a charity application to be processed or 1.5 years for CIDA to approve an application that used to take 6 months. 

Bloc Québécois Speech at Second Reading (Mr. Robert Vincent (Shefford, BQ))
http://www2.parl.gc.ca/HousePublications/Publication.aspx?Mode=1&Parl=40&Ses=2&Language=E&DocId=3655358&File=0#Int-2588298
He likes the Bill but has a concern about the Federal government to some extent legislating in an area of provincial jurisdiction.  “As well, section 154 of the Canada Corporations Act currently stipulates that the federal minister may grant a charter of incorporation if the corporation thereby created pursues objects “to which the legislative authority of the Parliament of Canada extends, of a national, patriotic, religious, philanthropic, charitable, scientific, artistic, social, professional or sporting character, or the like objects.”  But it appears that the proposed new legislation would not require a not-for-profit organization to include in its statutes the objects it intends to pursue, thus sidestepping the whole notion of specifying what action an organization can take in accordance with its goals.  Since we know that the federal Parliament only has jurisdiction over organizations that do not have provincial goals, this raises the following question: Why does the bill not include some provision to oversee what falls under federal jurisdiction? The Bloc Québécois feels that this question should be studied in committee. These are legitimate issues that the Bloc Québécois is trying to defend.  Under section 92 of the Constitution, managing the social economy, volunteering and community activities falls within provincial jurisdiction. As set out in that section, all matters of a merely local or private nature fall under Quebec’s exclusive jurisdiction.  I repeat; it is important to note that the federal Parliament has jurisdiction over only those organizations that do not pursue provincial objects. Section 92, subsection 11 of the Constitution Act, 1867 grants the incorporation of companies with provincial objects specifically to the provinces.  Accordingly, there seems to be a serious flaw in the bill and it must be carefully examined to avoid any potential conflict between the provinces and the federal government. The bill must be amended to limit its application to not-for-profit corporations that operate in several provinces, that have offices in several provinces or whose object comes under federal jurisdiction.  Adding these limitations is not mandatory per se. Constitutionally, the federal government does not have the authority to legislate in areas of Quebec jurisdiction. However, to avoid any confusion that could arise from the new wording of the legislation, it would be wise to include provisions limiting the scope of its application.”

New Democratic Party Speech at Second Reading (Ms. Libby Davies, Vancouver East, NDP)
http://www2.parl.gc.ca/HousePublications/Publication.aspx?Mode=1&Parl=40&Ses=2&Language=E&DocId=3655358&File=0#Int-2588360
She has concerns about the length ie. 170 pages.  ” The not-for-profit sector and our non-profit organizations have had to rely more and more on voluntary contributions and donations. They are always scrambling for money. The biggest issue facing the voluntary sector is not 170 pages of Robert’s Rules of Order and a regime of putting everyone under one size fits all, it is the question of stable long-term funding. Long gone are the days when non-profit organizations could rely on core funding to continue with their core operations and then expand to whatever programs they were doing. Now every organization, I dare to say, spends probably one-quarter or more of its time writing grant applications, chasing down every small bit of money that they can in order to develop their programs.  In my riding of Vancouver East there are organizations that are literally on the front line. They are literally dealing with life and death situations. These organizations are democratic. They are transparent. Everything that they do is out there for people to see and to become involved in.  In looking at the bill, I have some very serious questions as to why we are so focused on a regulatory regime for not-for-profits when we are completely missing the point of what is the real crux of the issue for non-profits in this country. The NDP, in going through this 170 page bill clause by clause and looking at the incredibly detailed micromanagement requirements that are in there, these organizations will now have to go through various hoops and there are processes and regulations involving a lot of paperwork and reporting requirements. It is absolutely incredible. It is 170 pages of things they have to note and make sure are followed up.”

Hyperbole Alert:   “I certainly have a concern that the bill in its current form will make it very difficult to attract new directors and volunteers in the not-for-profit sector. Anybody faced with this massive regulation would say, “I came here to do good work. I came here to make a contribution to my community. I came here to make good decisions. I came here to help people,” and all of a sudden that person is faced with having to deal with a massive bureaucratic regime, where one size fits all right across the country.  We have to seriously question whether or not the bill, if it is adopted in its current form, would have a counter-effect. Maybe it is being put forward from the point of view of transparency and accountability, but it may have the effect of turning people right off and asking why on earth they would get involved in doing this work when there are so many requirements and responsibilities.”  Ms Davis people don’t read the CCA, because it is long and incomprehensible to most directors, I don’t think this new legislation is going to make it worse.  It is hard to get people to volunteer for boards and actually attend the meetings and come prepared because people are working too hard (60 hour weeks), they do not have access to adequate child care solutions like universal day care and right now they are worried about their own jobs.  I am sure you will not disagree that those are factors!  Finally and most importantly a whole industry has been created of scaring directors into thinking that being on a non-profit or charity board is very risky and the likelihood of litigation is great (and providing advice to those anxious directors).  We all deal with risk everyday.  Serving on a non-profit board is a lot less risky than skiing or playing hockey - two things I try hard to avoid because skiing is plain dangerous, especially if you don’t have a helmet, and also I don’t skate. 

Clarification needed alert:  “Another concern that we have about the bill is that it does not address the relationship between charity status, Revenue Canada and the issue of advocacy. This has been a long-standing debate. There are organizations that are very concerned about the severe limits that are put on them to do advocacy work. Somehow advocacy has become a negative word. It has become a negative component to the work that is done. However, what I see in my community is that the advocacy work, which does not mean that it is partisan, to uphold people’s rights, whether it is in legal aid, housing or groups that have been very marginalized, is very important for the not-for-profit sector. This issue has not been dealt with at all.”  This made no sense but Libby if you want to call I would be happy to discuss.  Read the CRA Policy Statement on Political Activities (CPS-022) if you want to understand what political activities a Canadian charity can undertake with the blessing of CRA.  Canadian charities currently spend $50 million on political activities, even though by my calculation under the CRA rules they are allowed to spend about $15 billion.  Don’t blame CRA because many Canadian charities have not read CPS-022, don’t want to take the time to understand the political process, don’t want to allocate real resources to political activities, don’t appreciate the important role that government plays in so many aspects of our lives etc.  It is vital that Canadian charities be engaged in allowable political activities as set out in CPS-022, but this corporate statute is not the place to deal with it. 

 

There was some interesting back on the forth on the bill:

Superior North, NDP): 
  Mr. Speaker, we understand the need for bringing our corporations act into the 21st century. However, we are rather disappointed that a fairly straightforward six page present act has been expanded into a rather bloated a one hundred and seventy page document. We believe there will be need for amendments to the bill.  We are particularly concerned that the bill would increase the record keeping and regulatory burden on non-profits, especially the small non-profits. It seems to treat the average legion social club the same as it treats the Red Cross of Canada. We are concerned that the record keeping requirements will become onerous.  We hope there will be some trimming down and some thought given to that sort of thing. What we seem to have is a 170 page expansion and legalization of Robert’s Rules of Order.

Mr. Marc Garneau: 
  Mr. Speaker, I take note of the member’s comments. It is a large document, but the consensus that has been reached in consultations over a period of six to eight years is this is in fact a document that streamlines and clarifies the responsibilities and the processes involved with being a non-profit corporation.  However, I take note of the member’s comments. It would be important to ensure that small organizations would not burdened to the same extent as larger organizations. I welcome the member’s input to the committee discussions that will take place in due course to move toward a ratification of the bill.

...
Mr. Paul Szabo (Mississauga South, Lib.): 
  ...    The area I want to comment on is with regard to the coming into force of the regulations. The member may want to comment on this. The bill has a substantial section on the regulations. One of the regulation provisos indicates that the governor in council, basically the cabinet, can establish regulations. It gives cabinet the power to define certain terms used in the bill but they are not defined in the bill, which I find very unusual.  The bill provides substantive latitude and causes me a bit of concern with regard to the facility to be able to change the scope of legislation through regulation rather than through the legislation itself. In normal cases, regulations are enabled by the legislation itself. I raise this from the standpoint that I hope the committee will look at the extensive provisions allowing for regulations to be put forward. In my own view, they appear to be fairly broad and sweeping and there may be items here that should be incorporated into the legislation as it exists rather than at some other time at the discretion of cabinet.

 

———-

PRESENTATION BY THE CANADIAN RED CROSS SOCIETY  TO

THE STANDING COMMITTEE ON INDUSTRY, SCIENCE AND TECHNOLOGY

CONCERNING: BILL C-4 AN ACT RESPECTING NOT-FOR-PROFIT CORPORATIONS AND CERTAIN OTHER CORPORATIONS

TUESDAY, MARCH 10, 2009

APPEARING FOR THE CANADIAN RED CROSS:

Main speaker:  Alan D. Reid, Q.C., General Counsel
Witness:  Pam Aung Thin, National Director of Public Affairs and Government Relations

Monsieur le Président et membres du comité,

Au nom de la Croix-Rouge canadienne, je tiens à vous remercier de nous permettre de comparaître devant le Comité permanent de l’industrie, des sciences et de la technologie.

Permettez-moi tout d’abord de vous parler brièvement du mandat de la Croix-Rouge canadienne, avant de laisser la parole à notre conseiller juridique, M. Alan Reid, qui présentera nos commentaires concernant le projet de loi C-4 régissant les organisations à but non lucratif et certaines personnes morales..
La Croix-Rouge canadienne est un organisme humanitaire à caractère bénévole sans but lucratif, qui se consacre à améliorer la condition des plus vulnérables au Canada et partout dans le monde grâce à l’appui et le dévouement de plus de 30 000 bénévoles et membres, ainsi que de ses 3 500 employés.  La Société est dotée d’un mandat unique – celui d’auxiliaire des pouvoirs publiques à tous les échelons au Canada.  En ce sens, la Croix-Rouge canadienne joue un rôle essentiel en assurant le lien entre les gouvernements, la société civile et les collectivités qu’elle dessert..

La Croix-Rouge canadienne est membre du plus important réseau humanitaire au monde qui comprend plus de 100 millions de bénévoles et membres à travers le monde..  Elle fait partie du Mouvement international de la Croix-Rouge et du Croissant-Rouge, qui est formé du Comité international de la Croix-Rouge, de la Fédération internationale des Sociétés de la Croix-Rouge et du Croissant-Rouge et de 186 Sociétés nationales de la Croix-Rouge et du Croissant-Rouge..

Aujourd’hui, au nom de la Croix-Rouge canadienne, nous tenons à vous assurer de notre appui global au projet de loi C-4.  Je vais maintenant laisser M. Reid, présenter de manière plus détaillée nos commentaires et recommandations.

Mr. Chair,
Members of the Committee,

The Canadian Red Cross recognizes the need for new legislation governing not-for-profit corporations in Canada. Moreover, the Society participated in consultations organized by Industry Canada in 2002, and those consultations have influenced in many respects the form and content of Bill C-4.
In particular we welcome:

• Specific authority for telephonic and electronic meetings and voting;
• Authority to make binding unanimous resolutions without meeting;
• Tighter conflict of interest requirements;
• Broadening of indemnification authority, including indemnity advances, which may become increasingly relevant given the current public appetite for enforcing governance accountability;
• Overall, the increased deference Bill C-4 extends to corporate by-laws on many issues that were formerly regulated by the CCA and Ministry policy directives.

In 2005, the Canadian Red Cross appeared before the Committee to express its support for Bill C-21, a forerunner to Bill C-4, as well as to make some general observations, which we believe still largely apply.

While we support the “as of right” approach to incorporation, and welcome the fact the new corporate model will eliminate “up front” government regulation (e.g. no Ministerial approval of articles or by-laws), we note that the new corporate model places a large emphasis on self-regulation, and on checks and balances resting upon enhanced legal rights and access to courts. Bill C-4 is detailed and difficult legislation, and will be complemented by lengthy regulations. It will pose compliance challenges, not just for small not-for-profits that operate without legal departments and/or sizeable legal budgets, but even for large organizations such as the Canadian Red Cross, with easier access to legal assistance.  Every new comprehensive piece of legislation presents interpretive and operational issues, and Bill C-4 is no exception. It calls upon not-for-profits to address many new challenges: e.g. - systems for tracking and allowing access to a large and changing membership (in the case of the Society); procedures to meet enhanced accountability thresholds; adjustments to new financial procedures; re-doing of by-laws - all of which will require careful efforts to ensure that governance provisions and practices measure up to the new standards. Because there is a lot of room for error, and for disputes, in adapting to this new model, we encourage the government to support and build upon current Industry Canada initiatives to educate the not-for-profit, in particular the voluntary sector, through publications, websites, model by-laws, workshops, non-binding administrative opinions on key issues, all of which will assist not-for-profits, both large and small, in their due diligence and other compliance efforts.

While it is noted in the accompanying explanatory text that the Bill provides directors with an express “due diligence” defence against potential liability, we note also that the Bill equally promises to enhance and protect member rights and gives members additional power to enforce their rights and to oversee the activities of their organizations, as well as to monitor the directors’ activities. Finding ways of satisfying due diligence will become even more challenging and critical for directors than it is today. Arguably, this Bill may heighten tension between membership and directors, increasing the risk of liability rather than reducing it. While we have no doubt that well-qualified directors will continue to come forward to serve the not-for profit and charitable sectors, it will be interesting to see how insurance underwriters will assess the balance of risk and rights, and what impact this legislation will have on already steep premiums for directors’ and officers’ liability insurance.

In part, this question may be influenced by the extent to which the new corporate model stimulates resort to courts to resolve corporate governance issues. Given our concern that enhanced members’ rights, coupled with broader judicial remedies, could elevate dispute resolution costs for not-for-profits and charitable organizations, we would have preferred to see overt legislative encouragement of administrative process and alternative dispute resolution mechanisms. Section 293 gives the Director authority to “make inquiries of any person relating to compliance with this Act,” but for the most part the Director, like everyone else in the new model, may feel compelled to rely on courts to enforce compliance. We hope that the legislative model will prove flexible enough to allow for less formal and less costly means of resolving member/board/management tensions, as well as compliance issues raised by the Director, and we would encourage the government to create and finance a mandate for Industry Canada to assist not-for-profits in developing efficient and humanitarian approaches to resolving compliance issues, in lieu of engaging the courts.

The Canadian Red Cross, in preparing for this presentation, has chosen not to single out particular sections and clauses of Bill C-4 for specific criticism. Doubtless there are sections that might be improved, but a lot of work has gone into this Bill over many years by many experts in the field, and we choose not to repeat before this Committee comments we may have made in the reform process that have not found their way into Bill C-4. Notwithstanding small concerns that we may have about some of the details of certain provisions of the Bill, our primary message to the Committee today is that we view Bill C-4 as an important legislative initiative, and support the change it will bring. We will undoubtedly gain a deeper understanding of its complexities as we work through our governance and financial procedures in an effort to bring the Society into compliance with the new regime.

We would like to see the Bill move through the legislative process as quickly as possible. Reform of this area has been a long time in coming, and we are anxious to get on with the task of adjusting to the new regime.

Thank you once again for inviting us to appear before you.
Merci.

——-