CNCA needs to be more relevant to the sector it governs

  • January 22, 2020

The Canada Not for Profit Corporations Act, legislation based on the Canada Business Corporations Act, was a square peg whittled to fit into a round hole when it was passed in 2011.

Over the past eight years of working with the CNCA, members of the CBA’s Charities and Not-for-Profit Law Section have come to know its strengths and weaknesses, and the workarounds required to deal with an Act that it says was “philosophically unrelated to the corporate culture and practice” in the sector. The Section has prepared a submission in anticipation of the mandatory 10-year Parliamentary review of the legislation and its associated regulations with 19 recommendations for making the CNCA more relevant to the sector it governs.

The CNCA’s main problem stems from the fact that not only was it based on the CBCA, but the “drafters created a counterpart for each provision of the CBCA, rather than omitting provisions or relying on long-standing practices under the Canada Corporations Act for which no change seemed necessary,” the Section says, even though many of the CBCA’s provisions are not relevant to the not-for-profit sector.

That led to existing and new not-for-profit companies structuring themselves so as to bypass or circumvent provisions they saw as objectionable or overly restrictive, and continuing with the practices that had served them well under the previous Act.

“In many respects the CNCA is a good and modern corporate statute,” the Section writes. “The CBA Section does not intend our comments to be critical, but rather to suggest changes to eliminate some problems and make the Act generally more relevant and useful for the sector.”

The Section recommends changes that remove some of the more irrelevant provisions of the CNCA. It says, for example, that “the concept of ‘soliciting’ and ‘non-soliciting’ corporations, together with the establishment of mandatory class voting and the extension of voting rights to non-voting member classes, have been the major sources of difficulty for those subject to the CNCA.”

The CNCA has a provision that gives non-voting members voting rights, something that “runs counter to the reasons for creating a non-voting class of members,” and is neither wanted nor needed in the sector.  The provision has had the opposite effect to that intended by the drafters, the Section argues, in that many organizations have entirely eliminated non-voting members. “Others have a single class of membership but have established awkward fee or other structures to ensure that individual members can be treated differently. In some cases, these organizations have unwillingly and unnecessarily become soliciting corporations.” The Section recommends that non-voting members not have a vote – with the possible exception of in places where they have a true economic interest.

Other provisions that the Section would change include:

  • Director elections – The CNCA requires directors to be elected at an annual meeting, but there are many reasons why this is inconvenient for many not-for-profits. They should be permitted to provide for alternative means of electing or appointing directors in their bylaws.
  • Proxy voting – “The detailed proxy requirements in the CNCA result in lengthy, complicated proxies that are not always understood by members. Some requirements seem to be unnecessarily prescriptive …” The Section recommends changing the regulations to encourage corporations to adopt proxies.
  • Delegate voting – The CCA allowed delegate voting but the CNCA does not, as it’s not applicable in a share-capital corporation. However, delegate voting is a common form of voting in not-for-profit corporations and the Section recommends the CNCA be amended to permit it.
  • Virtual meetings – The CNCA’s commitment to facilitating greater member engagement through technology needs to be backed up by rules allowing corporation to hold a meeting of members partially or entirely by remote technology.