ONTARIO NOT-FOR-PROFIT CORPORATIONS ACT

WHAT IS THE ONTARIO NOT-FOR-PROFIT CORPORATIONS ACT?

While the Ontario Not-for-Profit Corporations Act, 2010, S.O. 2010, c. 15 (the “ONCA”) has a long history, receiving Royal Assent on October 25, 2010, it was only Proclaimed into force on October 19, 2021. The ONCA among other things, aims to streamline the incorporation of not-for-profit corporations, simplify processes, set out a due diligence and good faith reliance defence for directors, and provide members with greater access to financial records.

DOES THE ONCA APPLY TO MY CORPORATION?

The ONCA automatically upon proclamation applies to all not-for-profit corporations, whether charitable or non-charitable, incorporated in Ontario under Part III of the Ontario Corporations Act. Federal corporations, provincial corporations that are not Ontario corporations, trusts, and unincorporated associations are not affected by the ONCA.

WHAT IS A NOT-FOR-PROFIT CORPORATION?

A not-for-profit corporation:

• is dedicated to purposes other than pursuing a profit;
• is without share capital, which means the corporation does not issue ownership shares;
• may not distribute any profits to its members, directors or officers;
• must use any profit exclusively for not-for-profit purposes; and
• includes both charitable and non-charitable organizations.

Charitable Corporations

A “charitable corporation” means a corporation incorporated for the relief of poverty, the advancement of education, the advancement of religion or other charitable purpose. While a charitable corporation must meet the same requirements as a not-for-profit corporation, it must also have solely charitable purposes and provide an important benefit to the general public or an important section of the community. If the corporation intends to operate as a charity, the purpose set out in the articles of incorporation must contain exclusively charitable purposes and meet charity law requirements. Examples of a charitable corporation include, but are not limited to, schools, hospitals, and religious organizations.

Non-Charitable Corporations

A “non-charitable corporation” simply means a corporation that is not a charitable corporation. Not-for-profit corporations include, but are not limited to, social clubs, day cares, service clubs, or athletic organizations.

Commercial Activities

Under the ONCA, not-for-profit corporations may engage in commercial activities if those activities support the corporation’s not-for-profit purposes. The not-for-profit corporation’s articles must state that the commercial purpose is intended only to advance or support the not-for-profit corporation not-for-profit purposes.

WHAT IS A PUBLIC BENEFIT CORPORATION?

Certain not-for-profit corporations may be classified as “public benefit corporations.” Public benefit corporations are subject to additional rules and restrictions under the ONCA.

A “Public Benefit Corporation” means:

• a charitable corporation; or
• a non-charitable corporation that receives more than $10,000.00 in a financial year, in (i) the form of donations or gifts from persons who are not members, directors, officers or employees of the corporation, or (ii) in the form of grants or similar financial assistance from the federal government or a provincial or municipal government or an agency of any such government.

If a non-charitable corporation meets the above definition, it will be deemed to be a Public Benefit Corporation in its next financial year. If a not-for profit corporation is deemed to be a Public Benefit Corporation, (i) not more than 1/3 of the directors may be employees of the corporation or its affiliates, (ii) it will be required to appoint an auditor or individual to review the engagements of the corporation if its annual revenue exceeds $500,000.00, and (iii) will be subject to specific rules for dissolution.

WHAT DOES MY NOT-FOR-PROFIT CORPORATION NEED TO DO?

The ONCA came into force on October 19, 2021 and automatically applied to all Ontario not-for-profit corporations, subject to a three (3) year transition period. This transition period, which will end on October 19, 2024, gives not-for-profit corporations time to make any necessary changes to their constating documents such as:

• adopting ONCA compliant articles of amendment or adopt restated articles; and
• adopting ONCA compliant by-laws.

If a not-for-profit corporation has not amended their constating documents to comply with the ONCA by the time the grace period is over, any conflicting provisions will be deemed to have been amended to comply. Until the grace period is over, however, where there is a conflict between unamended constating documents and the ONCA, the corporation’s unamended constating documents will continue to govern.

Certain provisions will have the aforesaid three-year grace period to move from the bylaws or special resolutions to the articles in order to comply with the ONCA, specifically the following provisions:

• respecting the number of directors of the corporation;
• providing for two or more classes or groups of members, if applicable;
• respecting voting rights of members;
• respecting delegates made pursuant to the Ontario Corporations Act; and
• respecting the distribution of the remaining property of a non-Public Benefit Corporation on winding-up or dissolution.

Furthermore, not-for-profit corporations will be required to review their letters patent or articles of incorporation to ensure that the proper name and purpose of the corporation are set out explicitly. If any purpose of the corporation is focused on commercial pursuits, that purpose must be explicitly defined in the articles.

CONCLUSION

While this is a quick guide to the ONCA and is not meant to be an exhaustive resource, if you have a not-for-profit corporation and are interested in bringing it into compliance, or you are looking to incorporate a not-for-profit corporation under the ONCA, or you simply have questions regarding the above, please contact Jill Annett at jill@sorbaralaw.com.