Should Your Organization Stay under the ONCA or Continue to the CNCA?

Recently, the Ontario Ministry of Government and Consumer Services (the “Ministry”) released an update regarding the status of the Ontario Not-for-Profit Corporations Act, 2010 (“ONCA”).  The latest news is that the Ministry will give at least 24 months’ notice before the ONCA becomes effective.  Based on this announcement, the ONCA will not come into force before 2018.  For the time being, the Ontario Corporations Act (“OCA”) will continue to govern non-share capital corporations that are incorporated in Ontario.

Many Ontario non-share capital corporations have been waiting to update their corporate governance documents, including their letters patent and by-laws, to comply with the ONCA closer to the ONCA coming-into-force date.  For a corporation that is content with its current governance documents, this delay is not an issue.  However, a corporation that needs to amend its governance documents or wants to move to a more modern corporation statute should consider moving to the Canada Not-for-profit Corporations Act (“CNCA”).  A number of factors should be considered before making the decision to continue to the CNCA.

Potential Reasons to Move to the CNCA

When considering whether a non-share capital corporation incorporated in Ontario should move to the CNCA, the following factors may weigh in the decision:

• The entity should consider moving to the CNCA if its corporate documents need to be updated now.  Moving to the CNCA allows the corporation to update its documents all at once, rather than updating the documents under the OCA and then updating again to comply with the ONCA when it comes into force.
• Charities incorporated in Ontario must seek approval from the Ontario Public Guardian and Trustee (“PGT”) to make changes to the corporation’s letters patent.  This approval is not required for CNCA corporations.   Thus, corporations can remove a future layer of administration and time delays by moving to the CNCA. 

Reasons to Wait for the ONCA

• If a corporation has no pressing need to update its governing documents at this time, then it is fine to stay under the OCA and continue as usual.
• If the corporation has ex-officio directors, it may wish to remain in Ontario since the ONCA will allow for ex-officio directors.  Unlike the ONCA, the CNCA does not permit the corporation to have ex-officio directors.  An ex-officio director is a director by virtue of their position.  This means that the director is not elected by the members, but rather becomes a director by virtue of his or her position, like the Bishop of a Diocese or the Chair of a corporation.
• Corporations that have between $50,000 to $500,000 in gross annual revenue may be subject to different audit requirements under the two statutes.  Corporations that wish to avoid an audit may not want to move to the CNCA, as the ONCA has lower thresholds to opt-out of a full audit and review engagement than the CNCA.  For more information, read our article on Annual Reporting after Continuation under the CNCA.
• If a corporation is part of a group of corporations incorporated in Ontario, it may be more straightforward to keep the group of corporations in the same jurisdiction.
• Certain corporations cannot move to the CNCA.  For example, Ontario hospitals cannot continue under the CNCA since the Ontario Public Hospitals Act requires them to be governed by the OCA.  Similarly, corporations that receive funding from the provincial government should confirm that any funding agreement does not contemplate the corporation being governed by the OCA.

Other Differences Between the ONCA and the CNCA

Below is a list of some of the main differences between the two statues:

• An ONCA corporation must have a registered office in Ontario.  A CNCA corporation must have a registered office in a province in Canada specified in the corporation’s articles.
• The ONCA requires that a public benefit corporation cannot have more than one third of the directors be employees of the corporation or its affiliates.  In general, a public benefit corporation includes a charity and a non-charitable corporation that receives more than $10,000 from public sources in a year.  Generally, a CNCA soliciting corporation must have at least two directors who are not officers or employees of the corporation or its affiliates.  A soliciting corporation includes a corporation that receives more than $10,000 in public funding in a single financial year.
• A CNCA soliciting corporation is required to file its financial statements prepared by a public accountant with the Director of the CNCA. The ONCA does not have a similar requirement.  However, the regulations to the ONCA have not been released and they could contain a similar requirement.
• When a soliciting corporation is wound-up, the CNCA provides that its assets must go to a “qualified donee” under the Income Tax Act (Canada).  A qualified donee includes registered charities in Canada, government bodies, and a few other entities.   An ONCA charitable corporation must give its assets on winding-up to another ONCA charitable corporation with similar purposes or to a government body.  An ONCA public benefit corporation that is not a charitable corporation must give its funds to another ONCA public benefit corporation with similar purposes or to a government body.

Process for Moving to the CNCA

The process for export/continuance from the OCA into the CNCA consists of the following broad steps:

1. The directors and members of the corporation must pass a special resolution to authorize the export and continuance to the CNCA.
2. If the corporation is a charity, the export documents are then filed with the PGT for review and approval, along with all other ancillary documents.
3. Once approved by the PGT, the export documents must be presented to the Ministry for approval.
4. The approved application for export must be filed, along with Articles of Continuance, with Corporations Canada to obtain a Certificate of Continuance under the CNCA.
5. A copy of the Certificate of Continuance must be filed with the Ministry.
6. The directors and members must approve by-laws that conform to the CNCA.
7. The approved by-laws must be filed with Corporations Canada within 12 months of approval by the directors and members.
8. If the corporation is a charity, then the continuance documents must be filed with the Canada Revenue Agency (“CRA”) and the PGT.  The new by-laws must also be filed with CRA.
9. The corporation should inform relevant parties of the governance changes, including its bank and accountants.

Conclusion

This article outlines some of the reasons why an Ontario non-share capital corporation may consider becoming a federal corporation under the CNCA.  The article also explains, in general terms, the process for continuing an Ontario corporation into the CNCA.

The lawyers in the Charity and Not-for-Profit group at Miller Thomson LLP can review the particular needs of a corporation to help determine whether it should continue under the CNCA or wait for the ONCA.