On May 12, 2010 the Ontario Ministry of Consumer Services introduced the Not-for-Profit Corporations Act, 2010. The new Act received Royal Assent on October 25, 2010. It is anticipated that it will be proclaimed into force in late 2012. The Canada Not-for-Profit Corporations Actreceived Royal Assent in June, 2009 and is expected to be proclaimed into force this Spring. These two Acts include definitions to categorize not-for-profit corporations. In Ontario, certain not-for-profit corporations will be defined as Public Benefit Corporations. Federally, there will be a distinction between Soliciting Corporations and Non-Soliciting Corporations. ONTARIO – Public Benefit Corporations The new Ontario Act defines a public benefit corporation as a charitable corporation or a non-charitable corporation that receives financial benefits from people who are not members, directors, officers or employees, including government grants or similar financial assistance, that exceed $10,000 in a financial year. Public benefit corporations will be held to a higher standard than non-public benefit corporations in terms of being accountable for their financial activities because they receive funding from non-members.
The new Ontario Act sets out three basic rules for public benefit corporations:1) The audit exemption limits are capped at a lower level than for non-public benefit corporations – members can pass a resolution to have a review engagement instead of an audit if the corporation’s annual revenue is between $100,000 and $500,000. If annual revenue is less than $100,000, members can pass a resolution to dispense with an audit or review engagement.2) No more than one-third of the directors can be employees of the corporation or any of its affiliates.3) Any remaining property upon voluntary dissolution must be distributed to a another charity or to a public benefit corporation with similar purposes or to government. Canada – Soliciting CorporationsThe distinction between a “Soliciting Corporation” and a “Non-Soliciting Corporation” is one of the unique features of the new Federal Act.A soliciting corporation is typically one that receives donations from public sources and/or government grants in excess of $10,000 in a single financial year.Public sources include:
Donations or gifts from persons who are not members, directors, officers or employees of the corporation or from the spouse, common-law partner, child, parent, brother, sister, grandparent, uncle, aunt, nephew or niece of such persons.
Grants or other similar financial assistance from the government; or
Donations or gifts from another corporation that would meet the definition of “soliciting corporation”.
Once a corporation has been deemed to be soliciting, it continues as such for a three year period. If during that period there is another financial year over the $10,000 threshold, the 3 year period will start again.There are five special requirements that impact soliciting corporations:
They must have a minimum of three directors, two of whom are not officers or employees of the corporation or its affiliates.
They must send a copy of the corporation’s financial statements, public accountant report (if any), and any further information respecting the financial position of the corporation and the results of its operations required by the articles, the by-laws or any unanimous member agreement to Corporations Canada.
On dissolution, they must ensure that the assets of the corporation go to a “qualified donee” as defined by the Income Tax Act;
They cannot have a unanimous member agreement; and
They must follow specific rules for conducting their financial review including audits and review engagements.
Ontario Not-for-profit corporations will be given three years to amend their letters patent, by-laws and special resolutions to conform with the requirements of the new Act. At the end of the three years, such documents will be deemed to be amended to conform with the requirements of the new Act and such organizations will be operating under default provisions. The new Federal Act will likely come into force in a few months. To have the new Act apply, a corporation must be continued under the new Act. Corporations will have 3 years from the proclaimation date to complete the continuation process. Corporations that do not complete the transition will be automatically dissolved.
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