Canada: Amendments To Non-Profit Governance In Ontario

The Ontario Corporations Act ("OCA") was recently amended after not being substantially updated in many years. In November 2017, the Cutting Unnecessary Red Tape Act, 2017 made certain amendments to the OCA to bring long desired flexibility to the Ontario non-profit governance rules. The key changes to the OCA include:

• Directors Not Required to be Members – a corporation may now provide, in its by-laws, that a person may be a director even though that person is not a member of the corporation (s. 286(3)(d)).
• Removal of Directors Threshold Reduced – previously, a vote of two-thirds of the members was required to remove a director. The OCA now allows members to remove a director from office by a majority vote. Persons who are directors by virtue of their office (ex officio) cannot be removed in this manner (s. 127.2).
• Electronic Members Meetings Permitted – unless the corporation's by-laws provide otherwise, the OCA now permits members to hold meetings by telephonic or electronic means. Telephonic or electronic means is broadly defined as "any means that use the telephone or any other electronic or other technological means to transmit information or data, including telephone calls, voice mail, fax, e-mail, automated touch-tone telephone system, computer or computer networks" (s. 125.1).
• Natural Person Rights Granted – corporations have been given the capacity, rights, powers and privileges of a natural person, and it is no longer necessary for a corporation to pass a by-law in order to confer any particular power on the corporation or its directors. For example, corporations are no longer required to pass borrowing by-laws to permit the corporation to borrow funds. However, a corporation may not carry on any activities or exercise any power that is prohibited in the OCA, its letters patent or by-laws, or act contrary to the powers set out therein. The OCA also provides that a corporation's acts are valid even if it acted contrary to its letters patent, by-laws or the OCA (s.126.1).
• Standard of Care Explicitly Stated – the OCA now explicitly sets out the duties and standard of care expected of directors and officers, which is to "(a) act honestly and in good faith with a view to the best interests of the corporation, and (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances" (s. 127.1).
• Audit Exemption Changed – previously, exemption from audit was only available if the annual income of a corporation was less than $100,000 and all members consented in writing to the exemption for that financial year. Now, the OCA permits members to pass an extraordinary resolution (80% of the members at a general meeting) not to appoint an auditor and not have an audit in respect of a financial year if the annual revenue in that financial year was no more than $100,000 (s. 130.1).

The OCA continues to govern Ontario not-for-profit and charitable corporations until the Not-for-Profit Corporations Act, 2010 ("ONCA") comes into force. The ONCA received Royal Assent in 2010 but has not been declared in force. The Ministry of Government and Consumer Services has indicated an intention to bring the ONCA into force in 2020. In the interim, not-for-profit and charitable organizations in Ontario are encouraged to continue governance best practice for review, update and compliance of their governing documents and may wish to consider the benefits of the changes recently made to the OCA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.