As Canada’s most connected event and association management company we are pleased to publish guest blogs by our partners. This post is written by Andrew Buck, a lawyer with Pitblado Law in Winnipeg, Manitoba.
Continuing a not-for-profit corporation under the Canada Not-for-profit Corporations Act (“CNCA”) doesn’t have to be painful. With a little planning and foresight, continuance can provide an excellent opportunity to review your corporation’s governance practices.
You can also benefit from the lessons that have been learned by other not-for-profit corporations (and their lawyers) who have already gone down the path toward continuance.
With that in mind, here is part two of our two-part series on tips and traps for continuance under the CNCA (click here to read the first part of this series).
Electing directors: This is easily the biggest headache our clients have experienced. The CNCA requires the election of directors, by the members, at the annual meeting of the members. This has two significant effects. First, if your organization is used to having ex officio directors on its board (i.e., people who are directors because of the office they serve, such as a past-president), you’ll need to draft your by-laws and articles creatively. It’s not impossible to achieve the same effect, but it does take a little ingenuity and foresight. Second, if your members use an appointment process that occurs elsewhere than at the annual meeting of the members, you’ll need to rethink the way you do things. Again, there are solutions to this problem, but they require careful consideration and planning.
Number of directors: a corporation’s articles will tell Corporations Canada the minimum and maximum number of directors that it its members are authorized to elect. The corporation’s initial registered office and first board of directors form (and its subsequent changes regarding directors forms) will tell Corporations Canada how many directors are in office, at any given time. You need to ensure the number of directors your corporation has elected falls within your corporation’s permitted range of directors.
Removing directors: Many members are used to being able to remove the director they have appointed. Under the CNCA, members are permitted to remove a director only by a vote of the majority of all the members (not just the member who appointed the director). In other words, the CNCA envisions a collective process (all members must vote to approve the removal) – a single member cannot do it on its own. There is an exception to this rule – if the corporation has multiple classes of members, and a class has the right to elect a director or directors, then that individual class – not all of the members – can vote to remove the director it elected.
Notice and requisitioning meetings of members: While the CNCA is not generally prescriptive, it does contain a set of mandatory rules for meetings of members. In particular, the CNCA sets out how notice may be given (mail, courier or personal delivery; telephone, email or fax; postings on notice boards; and publication in newspapers and newsletters), as well as when notice must be given (generally speaking, between 21 and 60 days before the meeting, though the applicable notice period will depend on the method that is being used to give notice). As a corollary, many by-laws indicate that a majority of the members must sign a requisition to call a meeting of members. The CNCA overrides that practice and obligates a corporation to call a meeting of the members if members who hold as few as five percent the total votes of all members requisition a meeting.
Multiple member classes: Like the requirement that directors must be appointed, not elected, the inherent rights of individual member classes in a multiple membership class structure results in a series of complicated consequences (which could form the basis of an article, in and of itself). For now, suffice it to say that if you create different classes of members, you need to be aware that the CNCA will give each class the right to vote on certain fundamental changes separately, as a class. The practical effect could be that one class is able to veto something that may have otherwise been authorized by a majority vote of all of the members of the corporation.
Andrew Buck is a lawyer at Pitblado Law. He advises not-for-profit organizations about corporate governance issues and has guided many federally incorporated not-for-profit corporations through continuance under the Canada not-for-profit Corporations Act.
The information contained herein is for informational purposes and should not be construed as legal advice.