THE CLOCK IS TICKING ON THE NFP ACT! … just over 1.5 years to go!
The federal Not-for-Profit Corporations Act took effect on October 17, 2011. This means that federal corporations (NSOs, MSOs) now have under two 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 over the last two years. Scroll to the bottom of this page to see an up-to-date 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:
- No Past Presidents or Ex-Officio Directors on your Board. Over one-third of Canadian NSOs and many Canadian MSOs currently have ‘ex-officio’ directors on their Boards. Past-Presidents are also considered ‘ex-officio’ directors and are prohibited under the new Act.
- Restrictions on appointed Directors. The new Act severely restricts appointed directors. Many Canadian NSOs have appointed directors and most MSOs have appointed directors.
- All members may vote on certain ‘fundamental changes’. 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 will all gain the right to vote on certain matters related to membership. Furthermore, where an organization has more than one class of members, each class may vote separately on certain fundamental changes and each class must approve such changes 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.
- Membership structures should be redesigned. Because of the changes, most NSOs and some MSOs should seriously consider redesigning their membership structures. Classes of members should be streamlined, but each class should not contain too many (for ease of voting) or too few (for risk of a veto or member-requisitioned meeting) members. Advice from Carters, Canada’s leading charity law firm, is that organizations may want to collapse all membership classes into one class and remove non-voting membership classes to avoid future problems. This is a great opportunity to think about who are the “owners” of your organization, and how to find a good balance in their voting rights. Some MSOs do not have members at all – and this will require a finessing of a different sort. We also strongly recommend that these changes be made first under the Canada Corporations Act, before switching to the new Act - in other words, AS SOON AS POSSIBLE!
- RCAAA implications. 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 federal government has made changes to the Income Tax Act that will impact RCAAAs in a number of ways. Advice we have received is that CRA will be a huge bottleneck in the process, so organizations are encouraged to address this aspect EARLY.
- Other constitution and bylaws changes. The new Act also sets out different provisions for dealing with conflict of interest, providing notice of meetings, absentee voting, requisitioned meetings, removal of directors by the members, timing of the Annual Meeting, time required to publish financial statements, and other governance matters.
We encourage you to read more about the new legislation, in particular our writings below, and to contact us at your convenience for any assistance you might require. For many organizations, compliance will require a careful plan of changes to membership classes and board structures, which will require member engagement and approval. Transition to the new law will involve much more than bylaw-tweaking. Two years might seem like a long time, but we think it is important to get started now.
Feel free to contact us at the Sport Law & Strategy Group to help your organization with the transition.
We’ve written extensively on the subject of the NFP Acts – and other resources we have produced are posted in the sidebar:
- It’s a Good Idea to Check with Industry Canada as Part of Your Transition Strategy! (May 2013)
- Some Emerging Issues with Transition to the NFP Act (February 2013)
- Less Than 2 Years Left for Compliance with the NFP Act: Some Thoughts on Plans and Timing (November 2012)
- Transition Requires That You Dance the Two-Step (October 2012)
- Timing of Annual Meetings Under the NFP Act (July 2012)
- Snapshot of Membership Fees of National Sport Organizations (June 2012)
- Snapshot of Voting Structures of National Sport Organizations (May 2012)
- Income Tax Act Revisions Impose New Requirements on NSO Directors (April 2012)
- Why the new federal NFP Act is important to PSOs (February 2012)
- Don’t Overlook Some Financial Impacts of the NFP Act (February 2012)
- Wait and Hurry Up! New Corporations Act to Take Effect October 17, 2011 (October 2011)
- Is the New Federal Corporations Legislation on your Radar? (June 2011)
- Some Thoughts on Governance Reform (June 2011)
- New Corporations Act Creates Opportunities for NSOs (April 2011)
- Interesting Snapshot of NSO Board Structures (March 2011)
- Why and When You Are Required to Re-Incorporate Your Organization (December 2010)
- NPCA is on the Way (June 2010)