Sep 1, 2021

New Ontario not-for-profit legislation, business registry

By Linda J. Godel and Alexandra Zavalunov
Share:
The Lawyer’s Daily View original

On Aug. 17, 2021 the Ontario government announced that the Ontario Not-for-Profit Corporations Act (the "ONCA") will finally be proclaimed into force effective Oct. 19, 2021, (the “Proclamation Date”), almost 11 years from the date that it received Royal Assent. The proclamation of the ONCA coincides with the launch of the new Ontario Business Registry (the "OBR"), which has been a key factor in the delay of the ONCA coming into effect. 

Ontario Business Registry

The OBR, which will replace the current Ontario Business Information System, will be of assistance to all corporations in Ontario, including not-for-profits. The OBR will allow corporations to complete a multitude of transactions online and will consolidate all important filings and filing notices into one central repository. The Ontario government has promised that the OBR will make it “easier, simpler and more affordable” for corporations to interact with government services by offering direct access 24 hours a day, 365 days a year. The OBR will be a welcome change for Ontario not-for-profit corporations which have historically been required to file documents manually, often resulting in lengthy processing delays.

ONCA: Transition, effect, next steps

The Ontario Corporations Act (the OCA) currently governs most Ontario corporations without share capital (subject to certain exceptions such as corporations created by statute which specifically excludes the application of all or part of the OCA). On Oct. 19, when the ONCA comes into effect, it will automatically apply to every corporate entity without share capital incorporated by or under a general or special Act (unless specifically excluded in whole or in part by the Act). These corporations will then technically become known as “not-for-profit corporations” although many already use that moniker. 

Perhaps the most significant change that had been contemplated by the ONCA to the corporate rules under the OCA pertained to voting rights given to non-voting members, and separate voting rights given to different classes of members, in connection with certain fundamental corporate changes. Under the current OCA scheme, non-voting members and separate classes of members have no such imbedded privileges. Thankfully, the provisions of the ONCA which would have given non-voting members voting rights, as well as those that would have required certain fundamental matters to be approved by different classes of members, were repealed and are no longer included in the ONCA. 

Unlike the three-year transition period under the Canada Not-for-profit Corporations Act which began in 2011, there are no formal steps required to transition under the ONCA. Rather, any provisions in a not-for-profit’s governing documents (i.e., letters patent, supplementary letters patent and bylaws) that conflict with the ONCA will remain in effect for three years (the “Transition Period”), after which such provisions will be deemed to be amended to comply with the ONCA (subject to limited exceptions).

By way of example, under the ONCA, a not-for-profit’s incorporation documents (which will be called “articles” instead of “letters patent”) will be required to include the classes of members and the voting rights of each class, whereas under the OCA, this information is not required to be included in a non-share capital corporation’s letters patent. A corporation’s letters patent will be deemed to be amended immediately after the transition period to include the not-for-profit’s classes of members and their respective voting rights.

The automatic application of the ONCA, particularly the deeming provisions, may create significant problems for not-for-profit corporations as the governing documents of a not-for-profit may no longer reflect the actual rules governing the corporation. Thus, Ontario not-for-profit corporations should ensure that their governing documents are compliant with the ONCA prior to the end of the Transition Period. Steps taken by all Ontario not-for-profit corporations should include a review of their current governing documents and, where necessary, modifications to comply with the ONCA so that their governance requirements are clearly articulated.

Finally, in response to COVID-19, as of the proclamation date, certain provisions of the ONCA will be temporarily suspended until Dec. 31, 2021, with the possibility of extension (the “Suspension Period”). During the suspension period, directors’ and members’ meetings may be held electronically notwithstanding any provision in a not-for-profit corporation’s governing documents which may otherwise provide. In addition, during the Suspension Period, a vote at an electronic meeting of the members may be conducted by show of hands, ballot, or in such other manner as the chair of the meeting sees fit and members’ votes may be held by mail, telephonically or electronically whether or not a not-for-profit’s governing documents so permit.

The Ontario government has indicated that it will provide more information with respect to the ONCA closer to the proclamation date. Not-for-profit corporations should continue to monitor closely for any new developments. 

This article was originally published by The Lawyer’s Daily, part of LexisNexis Canada Inc.