Optimizing not-for-profit law

  • August 09, 2023

The Charities and Not-for-Profit Law Section of the Canadian Bar Association used the opportunity of government consultations on ways to improve the regulatory system to suggest again that changes be made to the Canada Not-for-Profit Corporations Act, or CNCA. In its submission, the Section offers further suggestions on the 12 issues it had previously identified. The most salient ones are summarized below.

The distinction between “soliciting” and “non-soliciting” corporations as well as mandatory class voting and the extension of voting rights to non-voting members “have been major sources of difficulty for those subject to CNCA,” the letter says. Accounting requirements that are difficult to understand, expensive to implement and varying from year to year depending on donation levels often result in requests for exemptions or non-compliance.

The requirement for a mandatory audit should be removed from the CNCA, the Section says. In addition, the distinction between soliciting and non-soliciting corporations should be eliminated “and a different method, preferably an ‘asset lock,’ be offered for ensuring corporate assets intended to be used for public benefit remain in that capacity.”

As well, the Act should not contain a requirement that “a soliciting corporation shall not have fewer than three directors, at least two of whom are not officers or employees of the corporation or its affiliates.” This requirement is so impractical for small boards that it often gets ignored.

Many actors in the not-for-profit sector would like to have ex officio or externally appointed directors, as permitted by provincial legislation in several provinces. This is often seen as desirable to create a link between an organization like a hospital and its fundraising “sister” organization. “Limiting directors exclusively to those appointed or elected by the membership is too narrow for the broad need in the sector for alternative forms of appointment,” the CBA submission reads.

The Section is of the view that non-voting members should not be given voting rights in matters of serious consequences to the corporation, since this would run “counter to the reasons for creating a non-voting class of members. On incorporation, the creation of this class is based on a fundamental assumption that those individuals are not intended to have a governance role in the corporation’s affairs. There is no need or will in the sector to provide otherwise.”

The CNCA requires that the technology used to conduct a virtual meeting allow for votes to be presented in a manner that maintains complete anonymity. This, the Section believes, may not be necessary. “For example, there is no anonymity for a vote conducted by show of hands or by proxy.” The relevant sections of CNCA should be amended to say that vote results can be “presented without it being possible for any member of the corporation to identify how each member or group of members voted.”