Of the 170,000 not-for-profit corporations in Canada, roughly 20%, or approximately 38,000, are governed by the Canada Not-for-Profit Corporations Act, enacted a decade ago. The Act contains a requirement for review after 10 years to ensure it continues to meet its objectives. The Charities and Not-for-Profit Law Section of the Canadian Bar Association, in a letter to the Minister of Innovation, Science and Industry, highlights a few issues that need particular attention.
Voting rights of non-voting members
In a 2019 submission on the CNCA the Section said it was inappropriate and problematic for non-voting members to have voting rights in the charities sector. Ontario, when it amended its Non-for-profit Corporations Act, 2010 last year, removed those rights except in cases where a corporation might include them in its articles or by-laws. Only the federal law mandates voting rights for non-voting members.
“Giving non-voting members the right to vote imposes a greater record-keeping burden on corporations, including the requirement to keep and protect more personal information,” the letter reads, adding that it might make it difficult for a corporation to hold important meetings “since most by-laws do not fix a quorum for non-voting members.”
Then there’s the risk of confusion when you consider the fact that in many cases, organizations require service recipients or participants to be members, for funding or insurance purposes. When members or participants are dependent clients or minors, it is not appropriate to give them voting rights. This increases the administrative burden on organizations. Worse, the Section says, “it can lead to an organization’s inadvertent non-compliance with important meeting rules and procedures, which, in turn, can invalidate a members’ meeting.” It can also lead to questions about governance if the rules are not followed for the election of directors.
Distribution of property to members
Corporations are prohibited from distributing property to members except where permitted by the Act or “in furtherance of its activities.” The Section is concerned this is too vague and guidance should be provided. “Specifically, provisions expressly permitting corporations to return equity interests to its members – which often applies to social clubs, such as golf clubs – would be of great assistance.”
Perhaps more importantly, distribution of property to members could result in a not-for-profit corporation compromising its status as a charity under the Income Tax Act, since it stipulates that the income of a charity or non-profit organization must not be available for a member’s personal benefit. As the Section points out, not-for-profit corporations must adhere to both statutes, even if one is more permissive than the other.
The second concern relates to the unintended consequences of requiring soliciting corporations to include in their articles that any property remaining on liquidation after discharge of liabilities be distributed to qualified donees. This could lead to corporations accidentally being non-compliant due to becoming soliciting corporations by virtue of additional donations.
Indigenous organizations
Indigenous communities tend to use CNCA corporations only to accept government funding and flow that funding to the community, without making distributions to their corporate members.
“There are some ‘independent’ Indigenous organizations (i.e., not part of a community economic development structure to receive government funding) incorporated under the Act,” the Section says, adding there is no reason why they might require special rules.
“The CBA Section believes that Indigenous organizations incorporated under the Act will benefit in the same manner as all other organizations from amendments that make the Act more practical, flexible, and easy to comply with. We do not believe that Indigenous organizations incorporated under the Act are making distributions to their corporate members.”
Electronic voting
Not-for-profit corporations engage their members in different ways, including through informal meetings where issues of importance are discussed. Attendance at formal meetings can be challenging for organizations, due to a variety of factors including costs, administrative burden, and availability of members. The Section recommends allowing organizations to hold votes outside of formal meetings to “give legal, binding effect to the informal decisions already made by members.” This would also help ensure informed voting and equitable access.