Government of Canada Tables New Regime for Not-For-Profit Corporations

OTTAWA, December 3, 2008 — The Honourable Diane Ablonczy, Minister of State (Small Business and Tourism), today introduced the Canada Not-for-Profit Corporations Act.

"Our government is committed to continue modernizing and streamlining the way it works with business," said Minister Ablonczy. "We are putting into place innovative reforms to the administration of programs and services for both the private and not-for-profit sectors. This new Act would promote accountability, transparency and good corporate governance for the not for profit sector and is the first significant modernization of Canada's not-for-profit legislation since 1917."

The proposed Canada Not-for-Profit Corporations Act will enable organizations to incorporate faster. In addition, it would improve their financial accountability, clarify the roles and responsibilities of directors and officers, and enhance the protection of members' rights.

"This Act means that not-for-profit organizations will have a modern and flexible legislative framework so that they can devote their energies to doing what they do best — helping deliver valuable services and programs to Canadians in need," added Minister Ablonczy.

The proposed Canada Not-for-Profit Corporations Act will allow for the repeal of the outdated Canada Corporations Act. It will also provide a modern, efficient corporate governance regime for some 10 share capital corporations created by Special Acts of Parliament by moving them into the Canada Business Corporations Act.

Corporations currently incorporated under the Canada Corporations Act will have three years to apply for corporate status under the proposed Canada Not-for-Profit Corporations Act. There will be no fees for this process.

There are approximately 161 000 not-for-profit organizations in Canada, of which some 19 000 are incorporated federally. These organizations include charities, community associations, family centres, shelters and religious organizations.

For further information (media only), please contact:

Catherine Godbout
Office of the Honourable Diane Ablonczy
Minister of State (Small Business and Tourism)
613-947-5856

Media Relations
Industry Canada
613-943-2502

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Backgrounder
Government Announces the Re-introduction of Legislation
Governing Federal Not-for-Profit Corporations and
Certain Other Corporations

The proposed legislation is an important step in modernizing Canada's framework legislation. Passage of the bill will result in:

• the creation of a new, modern, Canada Not-for-Profit Corporations Act;
• the movement of business corporations created by Special Acts of Parliament, subject to the Canada Corporations Act, into the Canada Business Corporations Act; and
• the repeal of the outdated Canada Corporations Act.

A New Not-for-Profit Corporations Act

Not-for-profit organizations play an important role in building a stronger Canada and contribute significantly to the economy. There are approximately 161,000 not-for-profit organizations, which generate $136 billion in annual revenues.

The Government of Canada supports the not-for-profit sector by:

• continuing its commitment to An Accord Between the Government of Canada and the Voluntary Sector;
• ensuring funding processes are streamlined, accountable and focused on results, as recommended by the Independent Blue Ribbon Panel Reviewing Grants and Contributions Programs of the Government of Canada;
• providing significant new incentives to better encourage charitable giving through tax measures; and
• raising awareness of the value of the sector as a partner in developing policy and delivering services.

In light of this, the Government of Canada is committed to modernizing the federal not-for-profit corporation legislation in order to improve governance and accountability, eliminate unnecessary regulation and offer flexibility to meet the sector's needs.

The importance of modernizing the governance of not-for-profit corporations is widely recognized. The current legislation, the Canada Corporations Act (CCA), under which more than 19,000 not-for-profit corporations and corporations without share capital are federally incorporated, has remained largely unchanged since 1917 and lacks modern governance rules.

The proposed legislation, the Canada Not-for-Profit Corporations Act, will strengthen and clarify corporate governance rules for federally incorporated not-for-profit organizations. It will provide these organizations with necessary governance tools to help enhance their sustainability and self-sufficiency.

The proposed legislation will also make it easier for these corporations to take advantage of the protections offered by incorporation and the predictability and accountability offered by a modern corporate governance framework. In doing so, the law will make the sector more sustainable and self-sufficient and increase its potential as a governmental partner.

The key elements of the proposed legislation are outlined below.

Role of the Director appointed under the Act: The Director will function primarily as a public registrar of not-for-profit corporations and exercise some regulatory powers under the new act. For example, the Director will be responsible for the issuance of certificates of incorporation, amalgamation or dissolution. At the time of incorporation or any time thereafter, the Director will be able to order a corporation to change its name if it is prohibited or deceptively misdescriptive. The Director will also undertake compliance and enforcement activities, which could include applying to a court for an investigation or to have a corporation dissolved or, under certain circumstances, dissolving it administratively. Previously, these powers were exercised under ministerial discretion.

Streamlined Incorporation Process: The "letters patent" system of incorporation is replaced by a streamlined incorporation process that eliminates the current requirement for ministerial review of every application for incorporation and approval of bylaws. Incorporation will be more efficient, especially since the proposed act allows electronic filing.

Improved Financial Accountability: Not-for-profit corporations take many different forms. The new legislation recognizes differences in the size of corporations based on annual revenues and their source of funding and applies appropriate financial reporting requirements.

Not-for-profit organizations will be categorized as either a "soliciting corporation" (corporation that solicits public donations or receives government funding) or a "non-soliciting corporation."

High-revenue, soliciting corporations will be required to be audited. Medium-revenue, soliciting corporations could resolve, with the consent of two thirds of their members, not to undertake an audit, but to undergo a review engagement, in which the scope of the review is less than that of an audit. Low-revenue, soliciting corporations will also require a review engagement. However, these organizations could resolve, with the consent of all members, not to undertake this process.

Disclosure of financial statements is an important tool for ensuring that corporations are properly managed. The new act will also require that all not-for-profit corporations make their financial statements available to their members, directors and officers. They would also have to be available to the Director appointed under the Act, who is the government official responsible for the administration of the act. Financial statements from soliciting corporations will be publicly available.

Rights and Responsibilities of Directors and Officers of Not-for-Profit Organizations: One of the major shortcomings of the CCA is that it does not outline the standard of care that directors must meet. The proposed act will clearly set out the standard of care for directors; that is, that they act honestly, in good faith and in the best interests of the corporation. In so doing, the new act will adopt the standard of care as found in the Canada Business Corporations Act and other modern corporate law statutes.

In addition to clear rules regarding the roles and responsibilities of directors and officers, the proposed act will provide them a "due diligence" defence against potential liabilities. The standard of care that directors must meet, and the due diligence defence, are measures that will reduce uncertainty for directors regarding their personal liability and should help attract qualified individuals to act as directors of not-for-profit organizations.

Enhancement and Protection of Members' Rights: The proposed act will also enhance and protect member rights. For example, members will be able to access corporate records (most importantly, the financial statements); access membership lists (subject to certain restrictions); and request a meeting and make proposals for discussion at the annual meeting. In turn, this will promote active membership and encourage members to monitor the activities of the corporation and its directors.

Transition and Fees: Corporations currently incorporated under the CCA will have three years to apply for corporate status (transition) under the proposed act. There will be no fees for this process. If a corporation does not apply for transition within the three-year period, it may be dissolved by the Director appointed under the Act. However, the proposed act will provide for the revival of a dissolved corporation if circumstances warrant.

Incorporation Fees for New Corporations under the Canada Not-for-Profit Corporations Act will be Set by Regulation: The existing fees under the CCA were set in 1976. In light of the User Fees Act, some fees may change to ensure fair and equitable pricing of services provided by the government. Fees will be set in regulation following consultation with the public. These changes are not expected to be significant, however, and could perhaps lead to an overall decrease in user fees, particularly if corporations opt to use electronic means of reporting.

Business Corporations Created by Special Acts of Parliament: A second feature of the proposed act would move share capital corporations created by Special Acts of Parliament, now subject to Part IV of the CCA, into the Canada Business Corporations Act. These corporations were created by private members' bills, some dating back to 1873.

The Canada Business Corporations Act will provide a modern, efficient corporate governance regime for the affected companies. While the disruption for these companies will be minimal, there may be short-term transition burdens, such as writing articles of incorporation and new bylaws. Corporations Canada will provide guidance to assist with the development of articles and bylaws.

Repeal of the Canada Corporations Act: The ultimate goal of the proposed legislation is the repeal of an outdated statute and its replacement by a more modern corporate governance regime. Repeal of the CCA will be carried out in phases according to the type of corporations being moved to permit organizations to transition to the new regime.

• First, the sections of the CCA (Part IV) that deal with business corporations created by Special Acts of Parliament will be repealed six months after the new act receives Royal Assent. Some of the Special Acts of Parliament applicable to Part IV corporations will be repealed at the same time.
• Second, the sections of the CCA (Parts III and V) that deal with not-for-profit corporations created by Special Acts of Parliament will be repealed when the new act comes into force.
• Third, the sections of the CCA (Parts I, II and VI) that govern standard not-for-profit organizations will be repealed after a three-year transition period that would ease migration of these corporations into the proposed act.