The new Canada Not-for-Profit Corporations Act came into force October 17, 2011. All federally incorporated not-for-profit corporations must continue into this new Act by October 17, 2014. Failure to continue the not-for-profit corporation will result in dissolution.
The new Canada Not-for-Profit Corporations Act makes positive improvements to the not-for-profit sector particularly in the areas of powers, corporate governance and accountability. Under the old regime, a not-for-profit corporation only had the powers expressly granted to it under its Letters Patent. Under the new Canada Not-for-Profit Corporations Act, a not-for-profit corporation has the powers of a natural person subject only to restrictions in the articles, thus opening opportunities for non-for-profit to engage in activities that might previously have been unable to pursue. Corporate governance has been brought more into line with those applicable to the for-profit sector. Accountability has been made more rational, with greater accountability to members including the right of members to access oppression remedies, and with the mandated requirement for audited financial statements being eliminated for some lower revenue corporations.
The transition by a not-for-profit corporation from the old act to the new Canada Not-for-Profit Corporations Act is made by a continuance. A continuance is filing of Articles of Continuance, along with the new by-laws with the Director for the Canada Not-for-Profit Corporations Act. The Articles of Continuance and new by-laws must be approved by the members by special resolution prior to submission. While there is no fee for the continuance, the process is not trivial and requires significant changes to the by-laws. The good news is that in many cases the by-laws may be significantly reduced because the default provisions of the new Act may be relied upon. A clear understanding of the new Canada Not-for-Profit Corporations Act is required in order to appropriately formulate the new by-laws to preserve the intentions of the members.
We represent the interests of a number of not-for-profit corporations located in Ottawa and elsewhere in the Province of Ontario.
Frequently Asked Questions
I have a corporation the shares of which are held only by me and members of my immediate family. Do I really need to have annual minutes?
If your corporation is audited by the CRA and matters, such as the declaration of dividends, have not been formally documented by a written resolution of the directors or in annual minutes, the consequence can be severe. There are other risks that may be avoided by having minutes prepared annually. This is analogous to your dentist who encourages you to have good dental hygiene and periodic check-ups so that small problems do not become big problems. Practicing good corporate hygiene just makes good sense.
The minimum legal obligation of a corporation is to hold an annual meeting of shareholders to consider the financial statements, elect directors and to appoint (or dispense with the appointment of) the auditor. In practice, and as permitted by statute, narrowly held corporations often dispense with an annual meeting in favor of signed resolution of all of the shareholders. The failure to hold annual resolutions, or obtain written resolutions in lieu, can lead to legal action from disgruntled shareholders.
The practice of holding annual meetings (or resolutions in lieu) also tends to ensure that corporate matters requiring attention are addressed, such as share transfers, changes to directors, and address changes, which if left unaddressed could become significant problems.
An effective method of ensuring good “corporate hygiene” is for the corporation to instruct its accounting advisors to provide legal counsel with an annual letter of instructions to document applicable financial matters.
It is not uncommon that a new client brings us a minute book that has not been properly organized, or that has not been updated for many years. It is not a cause for embarrassment. We strongly encourage that the minute books be updated before an issue arises, such as a CRA audit.
My friend and I have an idea for a business and we are considering forming a partnership. How does a partnership work and how should one be setup?
Whether or not a partnership exists is a fundamentally a legal question. Ontario’s Partnerships Act says that a relationship between “persons carrying on a business in common with a view to profit” is a partnership within the meaning of the Act. This is important because it means that whether or not you declare yourself to be a partnership, legally speaking, you might be a partnership anyways, whether you intended to or not.
A partnership can exist between you and your friend personally, or even as between two corporations controlled by each of you. Unlike a corporation, however, a partnership has no separate legal existence from the partners themselves and each partner has the power to bind the partnership and each partner is jointly liable for any obligations incurred on behalf of the firm. This is why, when deciding to form a partnership, a partnership agreement can be very practical.
A partnership agreement sets out the rights and obligations for partners in the partnership and provides for what should happen in circumstances of partnership incapacity, retirement or death. Without one, the Partnerships Act will provide for what happens to the partnership in these circumstances, often with unintended results. A partnership agreement can also provide mechanisms for the distribution of partnership income and a process for bringing additional persons into the partnership. Creating a partnership agreement that meets your goals with the help of a commercial Lawyer ensures that your partnership will continue in a manner of your design.
I am considering the acquisition of a business. Long term contracts between the business and third parties are important to the business. Do such contracts affect the decision to acquire shares or assets of the business?
There are a number of factors to be taken into account when purchasing an existing business including tax, liability, due diligence and employee matters. Your question relates to the contracts between the business and third parties. These contracts may include rights obtained by the business necessary to carry on the business, such as licenses or franchises, or the benefit of sale or service agreements for the supply of products or services that generate revenue for the business.
A fundamental difference between an asset purchase and a share purchase is that in an asset sale the contracts must be assigned (along with the transfer of assets) while in a share sale the contracts remain intact (since only the shares of the business itself are transferred).A comprehensive review of all important contracts is advisable as early as possible during the due diligence process to determine rights and obligations. If third party consents are required, consideration must be given as to the risk that such consents may not be available in a timely manner, or at all, and whether the transaction may be better structured to avoid the necessity for assignment. In some less common circumstances there is an outright bar to assignment and consents cannot be obtained (this is the case in some government procurements). The acquisition of the business in such circumstances may only be achieved through a share sale to avoid termination of such contract(s). It should also be noted that some contracts contain provisions that deem a change of control from a sale of shares to be equivalent to assignment, and triggering the necessity for third party consent.