Revising the Corporations Act

A Brief to the Sector

A Dedicated Public Benefit Corporations Act. (non-profit)

• Organizations serving the public good need their own act.

• Trade Associations and true membership corporations (clubs) have different interests and needs and confuse the public about the true nature of public benefit organizations.

• Organizations that can distribute assets to members should be in other legislation. Public Benefit Corporations cannot distribute assets to members except in very limited situations.

A Dedicated Public Benefit Corporations Act

• Should be so called because while they are not-for-profit (meaning all revenues are dedicated to the mission, and, retained for the public good on dissolution) the public gets confused and thinks they must never make a profit - e.g. breakeven or operate at a loss.

• A Public Benefit Corporations clarifies the nature of the corporate identify and avoids confusing the public.

Understanding the difference between charitable and non-profit

corporations• A charitable organization is almost always non-

profit and a charity. Charities have additional privileges and obligations.

• Donations to a charity are eligible for tax relief under the CRA. Moreover Charitable Foundations are restricted to making grants to charities.

• Charities are subject to more regulation but that regulation is located elsewhere - not in the Corporations Act

Charitable regulation requires improvement

• Ontario Public Guardian and Trustee of the Attorney General’s Office and Canada Revenue Agency (CRA) Charities Directorate both regulate charities.

• This causes difficulties and confusion for charities. Who does what? when?

• Other provinces have delegated to CRA responsibility for charitable regulation and enforcement.

Public Benefit Incorporation should be “As of Right”

• Meaning - that after meeting minimal criteria public benefit organizations may incorporate.

• The alternative is government deciding what is or is not a public benefit which may be cumbersome and slow to respond to emerging issues.

• All public benefit corporations will be subject to stringent non-distribution constraints.

Why “As of Right?”

• We do not believe that others, not genuinely interested in the public good, will find the non-distribution restraints appealing.

• CRA is already responsible for approving tax relief to public benefit organizations so they will act as a control if there are dubious public benefit organizations.

Unrestricted right to earn revenues

• Public Benefit Corporations must not be limited in their ability to earn revenues.

• The current act does not limit revenue generation by non-profit corporations.

• The PBC Act will limit the corporation’s ability to confer private benefit. (e.g. pay exorbitant salaries.) The Corporation must spend to further the mission.

• And on dissolution their assets must remain in the public domain.

The Powers of a Natural Person

• Business Corporations have the powers of a natural person and we think non-profit public benefit corporations should have the same rights.

• Charities, by virtue of their special status have controls and regulations that limit their activity.

Flexible Approach to Directors

• Three director minimum – at a minimum stand for election every three years, modern approach to calling meetings,

• Liability – same duty of care as for-profit. Directors not personally liable (acting in good faith) statutory liability remains

Membership, rights and remedies

• Role of members to elect directors to make decisions

• Right to financial disclosure, to by-law approval and to require compliance with Act, articles, and by-laws

• Right of interested “other parties” to seek court permission for corporation’s “best interest.”

An exciting opportunity to work with Government

• Clarifying and modernizing corporate legislation for Public Benefit Organizations.

• Ensuring clarity for the public as to the true nature of public benefit corporations.

• Robust non-distribution constraints to ensure public benefit.

• Streamline and improve charitable regulation• Work with Government to keep regulations

updated.

• ONN Expert Working Group preparing briefing notes to the sector on the modernization of the Corporations Act.

• Contact Chair: Janice Wiggins janice@volunteerlawyers.org

• April 28 launch: www.ontariononprofitnetwork.ca