THE CLOCK IS TICKING ON THE NFP ACT! 2 years and 9 months to go…
The federal Not-for-Profit Corporations Act took effect on Monday, October 17, 2011. This means that federal corporations (NSOs, MSOs) now have three years to transition from the current Canada Corporations Act to the new Not-for-Profit Corporations Act. Some information has been published on the Industry Canada website, and we have also written about this new legislation (sometimes called the CNCA or NPCA) over the last 18 months. Scroll to the bottom of this page to see a list of our concise, no-nonsense postings.
While the transition to the new legislation might appear to be a simple matter of changing bylaws and filing new paperwork with the government, there will – in fact – be a number of challenges for sport organizations at the national level. Here is a brief list of some of the important issues that we have identified:
- The new Act prohibits ‘ex-officio’ directors. Over one-third of Canadian NSOs and many Canadian MSOs currently have ‘ex-officio’ directors on their boards. Past-Presidents are ex-officio directors and will not be permitted under the new Act.
- The new Act severely restricts appointed directors. Many Canadian NSOs have appointed directors and most MSOs have appointed directors.
- The new Act gives to all members, whether they have voting rights or not, the right to vote on certain ‘fundamental changes’ to the corporation. A typical NSO has many classes of members, most of whom do not have voting rights, but under the new regime they can all vote (here is a snapshot of some common membership structures within NSOs). Furthermore, where an organization has more than one class of members, each class may vote separately on a fundamental change and each class must approve the change by a special resolution. This sets up an undesirable scenario whereby one class of non-voting members, entitled to what is called a Special Class Vote or SCV, could potentially hold ‘veto’ power over future changes to the corporation.
- As a result, most NSOs and some MSOs should seriously consider redesigning their membership structures. We also strongly recommend that these changes be made first under the Canada Corporations Act.
- The new Act will require the preparation of new articles of incorporation, which may have an impact on an organization’s charitable status as an RCAAA. The Canada Revenue Agency has recently made changes to the Income Tax Act that will impact RCAAAs. Advice we have received is that CRA will be a huge bottleneck in the process, so organizations are encouraged to address this aspect EARLY.
- The new Act also sets out different provisions for dealing with conflict of interest, providing notice of meetings, absentee voting, requisitioned meetings, and other governance matters.
- Many Canadian MSOs do not have members, which will require finessing of a different sort, under the new Act.
We encourage you to read more about the new legislation, in particular our pieces set out below, and to contact us at your convenience for assistance you might require. For many organizations, compliance will require a careful plan of changes to membership classes and board structures, all of which will require member engagement and approval. Although three years seems like a long time, we think it is important to get started now.
As stated by the Institute on Governance:
“Governance reform is typically 20 – 25 % substance and 75 – 80% process. How you go about change determines the outcome. Many organizations try to move too quickly, without fully appreciating the complexity of this kind of change. Leadership, consultation, communication, analysis, incentives and technology can all contribute to a successful result. [It is important to] determine a strategy that’s likely to work given your particular objectives, history, stakeholders, personalities and culture.”
Feel free to contact any of us at the Sport Law & Strategy Group. In the meantime, here are some resources as well as articles we have published over the last little while, listed in reverse chronological order (most recent at the top):
- Learn more about how the Act will affect timing of your AGM and production of audited financial statements – Don’t Overlook Some Financial Aspects of the NFP Act (February 2012)
- At the Rowing Canada AGM weekend in January 2012, we prepared an information display on the new Act and its impact on RCA, for members to view and discuss. It might be something for other NSOs to consider. Here is the display in English and French to give you some ideas (January 2012)
- Sport Canada has released its Governance Principles, here is the document in English and in French (November 2011)
- Rowing Canada Aviron and Speed Skating Canada want to share! Here is a terms of reference for a task force/subcommittee to oversee the process of governance reform to comply with the new Act, as well as principles to guide the governance reform effort (Term of Reference) (Principles)
- Powerpoint presentation to SIRC, Sport Canada, COC (October 2011) – NFP Presentation
- Wait and Hurry Up – New Corporations Act to Take Effect October 17, 2011 (October 2011) – here
- Is the New Federal Corporations Legislation on Your Radar? (June 2011) – here
- New Corporations Act Creates Opportunities for NSOs (April 2011) – here
- Interesting Snapshot of NSO Board Structures (March 2011) – here
- Some Thoughts on Governance Reform (January 2011) – here
- Why and When You Are Required to Re-Incorporate Your Organization (December 2010) – here
- NPCA is on the Way (June 2010) – here
- Links to the Act and Regulations – NFP Act (EN/FR), Regulations (EN), Regulations (FR)
WE WILL CONTINUE TO UPDATE THIS PAGE SO CHECK BACK OFTEN!
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Last updated February 1st, 2012
