October marks one year to the deadline for corporations incorporated under Part II of the Canada Corporations Act (CCA) to transition to the Canada Not-for-Profit Corporations Act (CNCA). This should come as no surprise; the CNCA came into force in 2011. Yet according to data obtained from Corporations Canada, as of September 1st only 1,663 out of approximately 25,000 corporations have made the corporate changeover. Recognizing that many of these corporations are inactive, that still leaves thousands of corporations to continue by the October 17, 2014 deadline.
Since the CNCA received royal assent in 2009, we have written extensively on its implications for not-for-profits and registered charities. For example, Are You Now or Have You Ever Been a Soliciting Corporation?,[1] Working Around Ban on Ex Officio Directors[2] and Officers Exposed to Liability Under New Federal Law speak to the legal issues brought to bear on the sector. However, unless a corporation actually makes the transition, it will have much more pressing issues to deal with, namely possible dissolution by Corporations Canada. For registered charities, this could lead to revocation, which would result in the corporation having to pay a tax equal to 100 percent of the value of their remaining assets. All this can be avoided by following a few steps.
To make the transition, all CCA corporations need to replace their letters patent, supplementary letters patent (if any) and by-laws with Articles of Continuance and new by-laws that comply with the CNCA. Though it is possible to submit a new by-law after the deadline, our recommendation is to submit the documents all together. The reasoning behind this is that a corporation that continues under the CNCA without a new by-law will be governed by the default rules in the statute until it does, which could lead to much turmoil.
A corporation’s continuance must be approved by special resolution (i.e. two-thirds of the votes cast) at a meeting of the members. This meeting must take place in accordance with the corporation’s CCA by-laws, since those are the rules governing the affairs of the corporation until a Certificate of Continuance is obtained. However, if the corporation has more than one class of members, the special resolution to continue may need to be approved by each class separately, even if those members would not ordinarily have the right to vote. For this reason, it may be advantageous to make amendments to the corporation’s conditions of membership under the CCA in advance of making the transition to the CNCA.
The rules under the CNCA are quite different than the old CCA, so the specifics that need to be set out in the articles and by-laws are also different. We cannot state strongly enough that the transition process is not simply a matter of transposing the provisions of the letters patent into the articles and using the same by-laws. Continuing will take deliberation and time is running out.
Joel Secter, lawyer
Drache Aptowitzer LLP in Ottawa.
He can be reached at [email protected].
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[1] The $10,000 amount is based on the proposed Regulations released on February 26, 2011.
[2] A not-for-profit does not have to include financial statements with the Non-Profit Organization Information Return (Form T1044).
Drache Aptowitzer LLP
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