Big changes in store for federal and Ontario charities

Robert Hayhoe,  a member of Miller Thomson’s national Charity and Not-for-Profit Law group.

Robert Hayhoe

Federally incorporated charities need to get moving on an impending deadline or risk dissolution, says Robert Hayhoe,  a member of Miller Thomson’s national Charity and Not-for-Profit Law group. Although the new federal legislation, the Canada Not-for-Profit Corporations Act, has been in force since October 2011, charities were given three years to comply with the new legislation. Those who have not complied by October 17, 2014 face dissolution.

Hayhoe also doesn’t advise waiting until the last minute to comply with the new requirements, but he says many of his clients seem to be doing just that. “We have gone through two of the three years in which we had to do these and we have done probably a third of our clients. The other two thirds, despite a little bit of chasing, haven’t given us instructions yet. And so, our concern is that there is just physically not going to be time next fall to do everybody who wants to continue.”

The modernization of the federal statute was long overdue, says Hayhoe, but it will also likely have some unintended negative consequences. Hayhoe says the federal government imported many concepts from the business corporation world, some of which don’t really fit for charities. For example, legal protections for minority shareholders that make more sense in the for-profit context are now part of the new federal act. “In the charities world there are often members who are the analogue to shareholders, who don’t have an economic interest, who were never intended to have governance influence, or were intended to have very limited governance influence, and so to give them unintended or mandate that they be given unintended voting rights, produces a fairly significant problem for some kinds of charities with some kinds of governance.”

In Ontario, similar changes to the provincial Not-for-Profit Corporations Act have been passed but not yet proclaimed in force. Hayhoe says “we expect it to be proclaimed in force some time in the next couple of months, probably year end, and when that happens, there will then be a three year window for Ontario charities and non-profits to transition over into the new statute.” Unlike the federal changes, Hayhoe explains, Ontario charities that do not comply won’t likely be dissolved, but there may still be negative effects on their governance. And he does not advise they wait until the last minute either.

Ontario non-for-profits that do not update their by-laws “will be deemed to have moved over into the new statute. It is not clear if there is a filing to do that but it looks like it will be automatic but the danger of that is after a couple of years, after three years, then the governance provisions of the new statute supersede what is in the by-laws of the charity or non-profit. And so they will be looking at their by-law thinking it says one thing, because it does say that, but with portions of it having been superseded. So, we are very much recommending that our Ontario incorporated clients transition into the new statute in a thoughtful manner, rather than just allowing it to happen by operation of law.”

Asked why he thinks the federal government passed these changes without properly addressing the differences between charities and for-profit corporations, Hayhoe says he doesn’t think they were doing it in bad faith. “They genuinely thought they were helping the sector, and by large they are helping the sector with it, it is just for this narrow set of charities and non-profits that have more complicated governance, the rules are more prescriptive than they ought to be. And they are prescriptive like that because the federal government listened to the wrong consultants.”

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