Five steps to transition: the Canada Not-for-Profit Corporations Act.

• Author: Patterson, Margot
• Position: Feature: Charity Law

[ILLUSTRATION OMITTED]

Introduction

The new Canada Not-for-Profit Corporations Act (CNCA) came into force in the fall of 2011, bringing with it a new framework for the governance and incorporation of associations, charities and other federal not-for-profit organizations. The CNCA will replace Part II of the Canada Corporations Act (CCA), which has set the rules for not-for-profit organizations since 1917.

The new legislation is long and detailed, for a reason. It is intended to provide a comprehensive "rule book" that will, among other things, replace a great deal of the detail that is now required in bylaws, and allow latitude for a corporation to either accept the default requirements in the legislation, or set rules to fit its own circumstances and practices. Overall, the CNCA will create a more streamlined framework for Canadian not-for-profit corporations, which should be well worth the initial transition process.

As under the previous legislative regime, the rules respecting corporate governance and the rules respecting registered charities are kept separate. The CNCA does not grant registered charity status under the Income Tax Act, nor does it directly address any other tax-related issues.

The Transition Period

Not-for-profit corporations currently incorporated under Part II of the CCA will have three years to transition to the CNCA to avoid dissolution. Please see the "5 Steps to Transition" below.

Bylaws

Industry Canada will no longer review and approve bylaws. Corporations will be required, however, to file bylaws and amendments with Industry Canada within twelve months of member approval. The CNCA will give corporations significant latitude to adopt bylaws that suit their specific needs.

Because the CNCA sets broadly applicable default rules, a corporation's bylaws can be minimal, containing as little as the conditions for membership and notice of members' meetings.

It will therefore be up to each corporation to decide whether it will simply review and amend its bylaws to ensure compliance, or create new minimal bylaws and rely primarily on the CNCA as its legal "rule book". The advantages and disadvantages for each corporation depend on its individual circumstances.

Directors' Fiduciary Duties

Directors will be subject to the same duty and standard of care as directors of business corporations: an explicit duty to act honestly and in good faith, in the best interests of the corporation, and to exercise the care, diligence and...