October 2012

Implications of the New Ontario Not-for-profit Corporations Act, 2010

Published in McCague Borlack LLP's Not-for-Profit and Charity Law Newsletter

In the new year, not-for-profit corporations will cease to be governed by the Ontario Corporations Act (the "OCA"). On January 1, 2013, the Ontario Not-for-profit Corporations Act, 2010 (the "ONCA") will come into force. The ONCA received Royal Assent on October 25, 2010, and its aim is to provide a modern framework for Ontario's 46,000 not-for-profit corporations, making it easier for them to operate.

This legislative change will affect many Ontarians, as Ontario's not-for-profit sector employs approximately 16% of all employees in Ontario. This enactment came on the heels of the Canada Not-for-profit Corporations Act, which received Royal Assent on June 23, 2009, and came into force in October 17, 2011.

Guiding principles and highlights¹

Instead of amending the OCA to address antiquated flaws dealing with not-for-profit corporations, the Ontario Legislature opted to start fresh with a new statute, removing not-for-profit corporations from the jurisdiction of the OCA. Thus, the ONCA's main objective is to allow not-for-profit corporations to operate within a simpler, more logical operational structure.

According to the Ministry of Consumer Services, the new legislation was drafted according to four overarching principles:

• transparency and accountability,
• flexibility and permissiveness,
• responsiveness and efficiency, and
• fairness.

Once the ONCA comes into force next January, the new legislation will give effect to these principles in six key ways:

1. simplifying the incorporation process by allowing for electronic incorporation;

2. improving corporate governance and accountability by providing for a statutory duty of care for directors (holding them to a higher standard of acting in good faith and for the best interests of the corporation);

3. providing more rights for members by granting them increased remedies, access to records, and a notice requirement for any disciplinary action;

4. clarifying that not-for-profit corporations are allowed to undertake commercial activities, as long as the profits are reinvested for not-for-profit purposes;

5. providing a simplified financial review process by limiting some requirements for audits; and,

6. aligning with the new Canada Not-for-profit Corporations Act.

Which organizations will be affected?²

Once the ONCA comes into force, it will govern the incorporation, governance and dissolution of charities, as well as not-for-profit corporations. However, current charities law will still govern the regulation of charities, and will prevail if conflicts arise.

However, some Ontario not-for-profit corporations will not be affected by the incoming ONCA. They include federally incorporated corporations and cooperative corporations that are governed by the Ontario Co-Operative Corporations Act. Not-for-profit corporations incorporated under other statutes may not be affected, depending on the circumstances.

Other special circumstances that may lead to exemptions from the new legislative scheme include share capital social clubs, such as golf clubs or cottager associations. These corporations will have five years to decide if they will continue to be governed under the ONCA or can move to be covered under the Ontario Business Corporations Act (as share capital corporations), or to the Ontario Co-Operative Corporations Act. Insurance companies that are currently governed by the Corporations Act will not be affected.

Overall, although the main focus of the ONCA is to streamline the way that not-for-profit corporations are governed, directors would be well advised to look into how the new statute will affect them and their of not-for-profit corporation in advance of January 1, 2013.

¹ Ministry of Consumer Services, "Modernizing the Not-for-Profit Sector", Queen's Printer for Ontario, Last Modified: June 6, 2011, http://www.sse.gov.on.ca/mcs/en/Pages/Not_For_Profit.aspx.
² Ibid.

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