Your Guide to the New Not-for-Profit Corporations Act

Do you currently hold a volunteer or paid position with a non-profit organization in Ontario, or are you considering getting involved? If so, you’ll want to be aware of changes set to come into force in late 2012.

Non-profits are the volunteer services organizations that we are all familiar with in our community. Common examples include: social and service clubs, amateur sports associations, churches or church associations, private schools, professional associations and charities including religious organizations). According to the Ontario government, Ontario’s not-for-profit sector employs about 16 per cent of all employed Ontarians and generates nearly $50 billion in annual revenues.

Not all non-profit organizations are also not-for-profit corporations. Non profits that have not  incorporated are treated for legal purposes as simply a collection of individuals. Incorporating gives an organization a legal status separate and apart from the individual organizers. While it is not essential for a non-profit organization to incorporate, doing so is highly recommended in order to isolate the activities and liabilities of the organization from the individuals involved.

Many not-for-profit organizations, especially smaller ones, can be burdened by the cost of financial audit requirements.

A Not-for-Profit corporation must carry on its activities without the purpose of gain for its members. It must have not-for-profit purposes and use any profits to promote those purposes. It is incorporated but doesn’t issue shares like a regular business corporation. Instead , it has members who guide the activities of the organization through a Board of Directors who are selected and elected by the members, typically on an annual basis, to direct the day to day activities on behalf of the membership.

Not all non-profit corporations are also charities. To also qualify as a charity, a non-profit must apply and qualify for charitable status to benefit from tax-exempt status and to issue tax deductible receipts to donors. Not surprisingly, charitable status comes with additional financial disclosure and other  government reporting requirements that ensure proper accountability.

The new Not-for-Profit Corporations Act, 2010, which is set to be proclaimed into force in late 2012, was intended to modernize the legal framework for Ontario’s approximately 46,000 not-for-profit corporations and make it easier for them to operate.

Under the new Act, directors and officers will be held accountable through a statutory duty of care which holds them to a higher standard to act in good faith and in the best interests of the organization. As a trade off against this higher standard of accountability, directors and officers that follow the proper requirements and standards will be better protected from personal liability.

The new Not-For-Profit Corporations Act will provide more rights for individual members of non-profits. Members will have more remedies if they believe the directors are not acting in the best interests of the corporation. Members will have greater access to financial information. 

If disciplinary action is being considered against a member by an organization, the member will now have the right to be given notice with reasons and the right to be heard (aspects of fundamental justice).

The new Act also clarifies and confirms that not-for-profit corporations are allowed to engage in commercial activities so long as the profits are reinvested in support of the corporation’s not-for-profit purposes.

Many not-for-profit organizations can be burdened by the cost of financial audit requirements. The new Act provides for a simpler financial review process in place of an audit in certain circumstances. When being invited to join a volunteer organization, we recommend that you consider asking the following important questions:

  1. What is the legal status of the organization? Is the organization properly incorporated under the Not-For-Profit Corporations Act (or its predecessor Acts)?
  2. What are the organization’s stated “purposes” or “objects”? By law, the legal document creating the not-for-profit corporation must specifically set out the purpose or objects for which the organization was created and exists. We recommend requesting a copy of the Certificate of Incorporation (known as “Letters Patent” for older non-profits), together with any amendments and changes, to ensure that the stated goals of the organization match with and meet your expectations.
  3. Does the organization maintain director’s and officer’s liability insurance for my benefit and for the benefit of all other volunteers? We recommend requesting a copy of a certificate of insurance, showing current director’s and officer’s liability insurance coverage both at the outset of your involvement and on at least an annual basis.

Volunteers are the fuel that drives many of our community’s most important activities and  undertakings. Contributing your time and talents to a worthy organization can be personally fulfilling and rewarding, while at the same time helping to maintain a community that we can be proud of and want to live in. Armed with some key legal concepts, you’ll also be in an excellent position to make the most effective use of your time and talents.