We sometimes see special provisions in Ontario non-profit corporations that give another group or individual in Canada or abroad certain approval rights for changes to certain matters that would normally be dealt with by members. We have always wondered whether such a provision would be enforceable, and we know that Ontario government has had concerns about these provisions in the past. We wanted to confirm whether the Ontario government had similar views now that ONCA has been passed.
We received a note from the Ontario government and we think this confirms our previous concerns about an external party just using special provision and not an agreement, such as an affiliation agreement. Such a special provision that gives the international or umbrella group the power to approve amendments to a group’s articles or by-laws, may not be enforceable.
Here are the comments from the Ontario government:
Thank you for your inquiry regarding special provisions under the Not-for-Profit Corporations Act, 2010 (“the ONCA”) for charitable corporations. We have reviewed your question with our ServiceOntario clients, and while the Ministry cannot provide legal advice, we have the following general comments.
As you know, under the ONCA, it is the responsibility of the corporation to ensure that its articles and by-laws are in compliance with the requirements of the ONCA. The Ministry endorses articles in accordance with section 201 of the ONCA after the articles, other required documents (if any) and the required fee are received in accordance with the signature and filing requirements under the ONCA, the regulations and the Director’s requirements.
We note that under the ONCA, the membership ultimately controls the corporation and a special resolution of members is required to make any amendment to the articles of the corporation in accordance with subsection 103(1). Accordingly, any special provisions in articles that would depart from membership control may be outside the scope of and not in compliance with the ONCA. As you may recall, under the Corporations Act, provisions in letters patent or supplementary letters patent for non-share capital corporations that raised issues regarding outside control were generally not acceptable to the Ministry as they were contrary to the principle of membership control.
As noted above, it is the corporation’s responsibility to ensure that its articles are in compliance with the ONCA. The Ministry generally does not review a corporation’s special provisions for articles filed under the ONCA. Articles that do not comply with the requirements of the ONCA may be subject to challenge from third parties.
We hope that this is helpful. You may also wish to contact the Office of the Public Guardian and Trustee in the event they have any comments from a charities law perspective.
Many groups outside of Canada may think that they have “control” of a Ontario corporation, but sometimes they are wrong and it can lead to conflict. Affiliation agreements can be a very weak form of control and special provisions in the articles can even be weaker. he best time to appropriately establish any oversight mechanism is when an organization is created. The next best time is before there is a fight between the Canadian group and the foreign group!
By Mark Blumberg, Blumbergs Professional Corporation
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