NFP legislation and its discontents

Federal legislation on not-for-profit corporations (NFPs) has been largely unchanged since the 1917 Canada Corporations Act. As you might expect, not-for-profits have changed quite a bit. Well aware of this problem, the government put forward an updated bill three times. The first was killed in 2004 by the election, as was the second in 2005. The third was cut off by the prorogation of parliament in December 2008, but on June 24, 2009, the Not-For-Profit Corporations Act was finally signed into law.

The broad aim of the Act is to put not-for-profits under the same legislation as for-profits except when their circumstances demand otherwise. It will give NFPs much more flexibility, extend them many of the protections and capabilities afforded to corporations, and pare down unnecessary regulations.

For example:

• Not-for-profits can incorporate and set by-laws by right, rather than having to apply to the Minister
• NFPs have the same rights as a “natural person,” as opposed to a complex rubric set out in the Canada Corporations Act
• Directors of NFPs have the same duties as in corporations: in a nutshell, to be prudent

While the non-profit sector hails the legislation as long overdue, certain articles have provoked consternation among those in the know.

The Act distinguishes between “soliciting” and “non-soliciting” NFPs, solicitation meaning income generation over $10,000. Seeing that soliciting NFPs gather citizens’ and public funds, the government sees fit that they be amenable to closer scrutiny. But as briefs from the Ontario Nonprofit Network and Imagine Canada point out, the distinction is not heuristic—nearly all NFPs qualify as “soliciting.” In their view, the provision will be an unnecessary, awkward burden. (The term also sounds rather Victorian.)

While the purpose of the Act is to streamline legislation and remove unnecessary obstructions, it does not appear to have been completely successful. The Imagine Canada brief points to the following:

• The bill grants voting rights to all members of a NFP. Considering that one can become a member of many NFPs simply by signing up online, this is rather unpractical.
• Standards for good practice must be prescribed in an NFPs’ articles of incorporation at their birth, and cannot be supplemented or modified through by-laws.
• Members have recourse to the same remedies as corporations, most notably the oppression remedy, which allows shareholders to sue a corporation if they believe it has behaved unwisely. These are inappropriate for most members of NFPs, who do not have a commercial interest.
• On the whole, the Act is extraordinarily long and complicated. Especially considering that many NFPs are run by volunteer boards without ready access to legal council, the Act will not make running these organizations substantially less onerous.

While the concerns expressed in the brief failed to persuade the Act’s authors, Ontario not-for-profits are on the whole relieved that the legislation has been updated. Better yet, it wasn’t cut off by an election.