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Do you have feedback on the Canada Not-for-Profit Corporations Act (CNCA)? The Ministry of Innovation, Science & Industry has launched public consultations on the CNCA. The goal is to gather views on whether it “continues to meet its objectives of ensuring strong and flexible transparency, accountability and good governance standards.”

The consultation is open now and runs until July 30, 2021. If you want to submit feedback, you can email in text or Word format to ic.nfpactreview-examenloibnl.ic@canada.ca.

The Ministry has published a related Consultation Paper to help guide feedback and to identify issues. These are specific issues previously identified by stakeholders or that have emerged since the CNCA was enacted 2011.

Feedback can address any or all of the issues in the Consultation Paper. You can also address other issues that concern you and how you propose improving or resolving those issues.

The Consultation Paper highlights the selfless volunteering of over 12 million Canadians who contribute to charities and not-for-profits! It points out that there are 38,000 not-for-profit corporations regulated under the CNCA – this is about 20% of the total Canadian not-for-profit corporations. It also points out the Special Senate Committee’s Report, Catalyst for Change: A Roadmap to a Stronger Charitable Sector (June 2019). That Report made 42 recommendations but “refrained from making recommendations related to corporate law” in light of the upcoming statutory review; that is, the current consultation.  

Here is a summary of the Consultation Paper’s key points.

Nature of Stakeholder Feedback

There are different ways to approach solving a problem. The Consultation Paper recognizes that stakeholders might propose legislative and/or regulatory changes. If you provide feedback, you’re specifically invited to indicate where regulatory changes could be sufficient, or provide other alternatives to legislative change.

Audits & Financial Reporting

Concerns: accounting, audit and financial reporting obligations and regulations are confusing and unduly onerous for small corporations; donations can vary year to year, impacting accounting requirements

Past recommendations: increase revenue thresholds that trigger specific obligations; calculate revenue thresholds on a multiyear rolling average; lower percentage of votes required for changing level of review; allow corporations to choose the level of financial review

Questions:

  • Should adjustments be made to audit and financial reporting obligations? If yes, how?
  • How can the administrative burden be reduced while maintaining an appropriately high standard of corporate accountability and transparency?

Board of Directors

Concerns: director elections are inflexible and out of step with long-standing traditions of many not-for-profit (NFP) corporations; the 1/3 rule is difficult to apply and overly constraining; impractical for smaller soliciting corporations to have two directors who are not officers (especially if they move back and forth between soliciting and non-soliciting status)

Past recommendations: reduce the percentage of directors that needs to be elected; attach the election rule to any election made by members, not just the immediate last AGM; allow ex officio directors (or allow members to adopt this stipulation)

Questions:

  • Should adjustments be made related to the appointment of directors? If yes, how?
  • How can there be greater flexibility while ensuring that the board remains accountable to the membership?

Hybrid and Virtual Decision-Making

Concerns: inconsistency in default requirements where members can participate in meetings via phone or electronic means (unless by-laws otherwise state), but corporations can only fully hold meetings via phone or electronic means if by-laws expressly permit

Past recommendations: allow all corporations to meet or participate virtually as a default; modify the definition of “place”

Questions:

  • Should adjustments be made to facilitate virtual meetings? If yes, how?
  • How can the changes account for both the cost-saving opportunities of virtual meetings while ensuring the full participation of members on issues for which they have a right to vote?

Classes of Membership

Concerns: the CNCA is not prescriptive when it comes to classes, regional or other groups and how voting rights attach to each and its silence on delegate voting (neither permitting or prohibiting) is unhelpful; corporations like religious denominations have large constituencies and it is impossible or impractical to have everyone attend membership meetings

Past recommendations: explicitly permit and provide guidance for delegate voting

Questions:

  • Should adjustments be made to facilitate delegate voting? If yes, how?
  • How can this be done with respect to the benefits and risks of detailing rules on this type of organizational structure?

Members Rights

Concerns: lack of flexibility regarding member votes, even though technology readily facilitates reliable stand-alone votes; giving voting rights to non-voting members is disruptive, prevents NFPs from optimally structuring their decisions

Past recommendations: make requirement that votes take place at member meetings a default rather than a mandatory rule, allowing member votes outside of meetings; allow corporations to require that proxyholders be members; make the current mandatory rule giving non-voting members voting rights (e.g. before dissolution, continuation, fundamental restructuring) a default rule instead of a mandatory rule

Questions:

  • Should adjustments be made to members voting rules? If yes, how?
  • How can the changes provide greater flexibility while ensuring appropriate protection for the democratic rights of members?

Permitted Distribution of Assets

Concerns: unclear what the Act allows when (e.g.) organizations return subscription fees upon resignation or membership termination

Past recommendation: provide clarity like there is in cases of liquidation, where there appears to be express permission to distribute property among members

Questions:

  • Should adjustments be made to permit distribution of property, accretions or profits? If yes, how?
  • How can this be done while accommodating the variety of organizations governed by the CNCA?

Recent Developments in Business Corporations Legislation

Concerns: diversity disclosure, corporation beneficial owner information, fiduciary duty of directors

Past/parallel recommendations: business corporations must report on diversity policies, including representation targets, using a “comply and explain” approach (No policies? Explanation required); Special Senate Committee suggested T3010/T1044 reporting; create/maintain register with information about individuals with significant control of their corporation; legislation amended to clarify directors and officers may consider a wide range of stakeholder interests when exercising their fiduciary duty

Questions:

  • Should developments in business corporations legislation be considered for the NFP sector? If yes, how?

Other Issues

There may be other concerns stakeholders want to raise. For example, definitions and terminology, creating purpose-specific obligations for different NFP categories, novel trends, etc. On these or any other issues, stakeholders are invited to suggest whether and how modifications to the CNCA would be warranted.

The Deadline & Details

The consultation is open now and runs until July 30, 2021. If you want to submit feedback, you can email in text or Word format to ic.nfpactreview-examenloibnl.ic@canada.ca. The Ministry may make all responses public, or provide summaries. When you submit your feedback you can

  • Request that your identity and personal identifiers be removed prior to publication, or
  • Identify any portions of your submission that you wish to be kept confidential

The government plans to include submissions in a report that will be introduced to Parliament in the fall of 2021.

Noteworthy is provided for general information purposes and does not constitute legal or professional advice. Every organization’s circumstances are unique. Before acting on the basis of information contained in this blog, readers should consult with a qualified lawyer for advice specific to their situation.

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