What is a member-funded society?
The Societies Act (British Columbia) (the “Act”) sets out the rules and requirements governing British Columbia societies. The Act recognizes “member-funded societies” as an alternative type of society. Member-funded societies do not receive significant funding in the form of public donations and/or government funding, and are subject to different rules and requirements under the Act compared to those that apply to regular societies. These rules and requirements include more flexible governance requirements, and exemptions from various public accountability provisions and distribution restrictions on winding up. Member-funded societies also have the ability to convert to a British Columbia company under the Act.
The constitutions of member-funded societies include the following member-funded society statement as provided in the Act:
“This society is a member-funded society. It is funded primarily by its members to carry on activities for the benefit of its members. On its liquidation or dissolution, this society may distribute its money and other property to its members.”
This statement is added to the constitution of a member-funded society when it is incorporated. If an existing society qualifies to become a member-funded society, the qualifying society may also apply to the Registrar of Companies of British Columbia to change its constitution to include the member-funded society statement, provided that the society’s members have approved the change by a special resolution and the society has obtained a court order declaring that the society is not prohibited from including the statement in its constitution.
However, the member-funded society statement and the title “member-funded society” itself are misleading, as a society does not have to be funded primarily by its members in order to be a member-funded society. Rather, the society simply must not receive public donations and/or government funding that exceeds a prescribed amount, or fall into a prohibited class of societies. While the member-funded society designation may have initially been intended for professional associations or private clubs, any society that meets the pre-requisites can become a member-funded society. We discuss these pre-requisites below.
What are the pre-requisites for becoming a member-funded society?
1. Funding
Member-funded societies cannot receive significant funding in the form of public donations and/or government funding. Public donations are donations other than those made by a voting member, director, senior manager or employee of the society (or a spouse or relative of any such person or of that person’s spouse), and donations made under a testamentary instrument by any of these individuals within the allowable period. Government funding means funding by way of a grant, a loan without interest or with interest substantially below the market rate, or similar funding that is provided by: a) the government of Canada or any provincial government; b) a municipality in Canada; c) the governing body of a First Nation in Canada, including the governing body of a band; or d) an organization that is owned or controlled by, or is an agent of, any such governments or bodies.[1]
That being said, member-funded societies may receive some funding in the form of public donations and/or government funding, limited to the greater of $20,000 and 10% of the society’s gross income in the two financial years immediately preceding the current financial year. If a society receives public donations and/or government funding in its two preceding financial years in an amount that exceeds the greater of $20,000 and 10% of the society’s gross income, then the society cannot be a member-funded society.
2. Prohibited classes of societies
In addition to complying with the limits on public donations and/or government funding, a society cannot be any of the following if it wishes to remain a member-funded society:
- a registered charity or other qualified donee under the Income Tax Act (Canada);
- a designated recipient under the Provincial Sales Tax Act (British Columbia) or a society that is otherwise entitled to receive taxes, fees, or other revenue received by the government as agent of the society;
- a student society under the College and Institute Act (British Columbia) or University Act (British Columbia);
- a hospital society under the Hospital Act (British Columbia), or a society that owns, manages, or operates a licensed community care facility as defined in the Hospital Act, that is designated as a hospital society under the Hospital Act; or
- a society that is prohibited under the regulations, which currently includes:
- societies that receive or have received loans or grants of money from the British Columbia Housing Management Commission;
- societies that are or have been service providers under the Community Living Authority Act (British Columbia); and
- societies that are authorities under the Independent School Act (British Columbia) that have received a grant for the previous school year as defined in the Independent School Act.
Why become a member-funded society?
As mentioned above, member-funded societies are subject to different rules and requirements under the Act. This includes more flexible governance requirements, exemptions from various public accountability provisions and distribution restrictions on winding up, and the ability to convert to a British Columbia company. Incorporating or converting an existing society to a member-funded society may therefore be an attractive option for incorporators or existing societies looking to take advantage of the associated flexibility and exemptions.
1. Flexible director requirements
Member-funded societies can have only one director, and there is no requirement to have any director ordinarily reside in British Columbia. Additionally, any number of the directors may be compensated by the society under contracts of employment or contracts for services.
In contrast, regular societies must have at least three directors, at least one of whom ordinarily resides in British Columbia. Further, a majority of the directors must not receive or be entitled to receive remuneration from the society under contracts of employment or contracts for services, other than remuneration for being a director.
2. Financial disclosure exemptions
Member-funded societies are not subject to the same financial disclosure requirements as regular societies. Specifically, member-funded societies are not required to provide copies of their financial statements or any auditor’s report on those statements to members of the public upon request. Member-funded societies are also not required to report on the remuneration of directors, employees, and contractors in the notes to their financial statements.
By contrast, regular societies must provide members of the public with a copy of the society’s financial statements and any auditor’s report upon request and upon payment of any reasonable fee charged by the society,[2] and must report on the remuneration of directors, employees, and contractors in the notes to their financial statements.
3. Flexible distribution on dissolution or liquidation
On the dissolution or liquidation of a member-funded society, the member-funded society may distribute its remaining assets to any person specified in the society’s bylaws or, if unspecified, to any person specified in an ordinary resolution or in a directors’ resolution, if passing an ordinary resolution is unfeasible.
On the other hand, regular societies must distribute their remaining assets to one or more “qualified recipients.” Qualified recipients include community service cooperatives under the Cooperative Association Act (British Columbia), registered charities or other qualified donees under the Income Tax Act (Canada), charitable trusts, and societies other than member-funded societies.
4. Ability to convert to a for-profit corporation
A member-funded society can convert to a British Columbia company under the Business Corporations Act (British Columbia). To convert to a British Columbia company, the member-funded society must receive authorization from its members by a special resolution. The special resolution must adopt, in replacement of the society’s constitution and bylaws, a notice of articles and articles. The special resolution must also authorize one or more of the directors to sign the articles and file the conversion application with the Registrar of Companies of British Columbia. One or more of the directors must then sign the articles.
The Act does not currently permit a regular society to convert to a for-profit corporation. Additionally, there is currently no direct process for converting a for-profit corporation to a British Columbia society (whether this be a member-funded society or a regular society).
Closing Remarks
Member-funded societies are an attractive option, not just for professional associations or clubs in British Columbia, but for any group in British Columbia that wishes to take advantage of this type of society’s flexibility and exemptions – while being prepared to live under this model’s restrictions. If you have a question about this article or would like expert assistance on incorporating a member-funded society or advising an existing one, please contact a member of our growing Social Impact Group in Vancouver.
[1] Except for COVID-19 relief funding, as defined in the regulations.
[2] In addition to the requirement to be “reasonable”, any fee charged by the society must not exceed the limit provided in the regulations, which is currently $10 plus: a) $0.50 per page, other than for a copy provided by email, or b) $0.10 per page for a copy provided by email.
