Not-for-Profit Corporations Act - Key Terms
Under ONCA, there are new features and terms that not-for-profit corporations may want to consider as they may affect your organization when the Act comes into effect.
Public Benefit Corporations
A new distinction is made between public benefit corporations and other not-for-profit corporations. A public benefit corporation is defined as: (a) a charitable corporation, or (b) a non-charitable corporation that received external funds (e.g. donations or gifts from non-members or grants or similar financial assistance from government) in excess of $10,000 in the corporation’s financial year (section 1 of ONCA).
Special rules apply to public benefit corporations under ONCA that do not apply to other not-for-profit corporations. Examples include:
- Different audit and review engagement requirements (section 76 of ONCA)
- Board composition (i.e. not more than one-third of the directors of a public benefit corporation may be employees of the corporation or of any of its affiliates, (section 23 of ONCA)
- Restrictions on the distribution of a corporation’s property upon winding up (section 150 of ONCA) and distribution to members upon dissolution (section 167 of ONCA)
- A three-year asset lock for voluntary dissolution (section 167 of ONCA)
ONCA clarifies that not-for-profit corporations can engage in commercial activities if the activities are in support of the corporations’ not-for-profit purposes, which must be stated in the articles (section 8 of ONCA).
Statutory Duty of Care
Directors will be held accountable through a statutory duty of care in ONCA. This will require directors to act honestly and in good faith with a view to the best interest of the corporation, and to exercise reasonable care, diligence and skill (section 43 of ONCA).
The Act requires having a minimum of three directors (section 22 of ONCA). This is no different than the Corporations Act. However, a public benefit corporation shall have no more than one-third of the directors who are employees of the corporation or of any of its affiliates (section 23 of ONCA).
Maximum Term of Office
ONCA provides a maximum period of four years for each term of office for a director (section 24 of ONCA).
A director of a corporation is not required to be a member of the corporation unless the by-laws provide otherwise (section 23 of ONCA).
ONCA gives members enhanced rights for greater transparency, including:
Greater access to financial statements (e.g., upon request, a member is entitled to receive financial statements at least 21 days in advance of an annual meeting (section 84 of ONCA)
An enhanced ability to apply to the court for a compliance order to make officers and directors comply with ONCA, the articles and by-laws of the not-for-profit corporation (section 191 of ONCA)
Multiple Classes of Members
If a corporation has two or more classes or groups of members, the classes or groups of members must be set out in the articles. The by-laws must set out the conditions of membership. (section 48 of ONCA)
Limited Access to Members’ Register
Only a member, a member’s attorney or legal representative, a creditor of the corporation and a director of the corporation may examine a members’ register (sections 94, 95 and 96 of ONCA).
A corporation may set out in its articles or by-laws that the directors, members or any committee of directors or members have the power to discipline a member or to terminate their membership, provided that the circumstances and the manner in which this power may be exercised is also set out.
ONCA requires that members be given at least 15 days notice and provides basic procedural rights if disciplinary action or termination of membership is contemplated. These basic rights include minimum notice with reasons and the opportunity to be heard (section 51 of ONCA)
Right to Dissent and Appraisal
The right to dissent and appraisal allows a member to object to a limited number of significant changes in the corporation and entitles the member to be paid by the corporation the fair value of the membership interest including any capital contribution held by the member, if certain requirements are met (section 187 of ONCA). This right applies to a corporation that is not a public benefit corporation.
ONCA allows for a new and simpler process for reviewing the corporation’s financial records. Called a review engagement, it can take the place of an audit in specified circumstances. (Note: The current Corporations Act does not permit review engagements). In some situations, neither an audit nor review engagement will be required (section 76 of ONCA).
The chart below outlines the types of financial review required under ONCA.
Financial review required under ONCA
|Type of Corporation
||Amount of Revenue
||Type of Financial Review |
|Public Benefit Corporation
||$ 100,000 or less
|More than $100,000 but less than $500,000
|$500,000 or more
|Non-Public Benefit Corporation
||$500,000 or less
|More than $500,000
*Approval to waive an audit or to waive both an audit and review engagement requires an extraordinary resolution.
Audits or review engagements must be conducted by a person permitted to do so under the Public Accounting Act, 2004, who must also be independent (section 69 of ONCA).
Mandatory and Voting by other Means
It is mandatory for corporations to make proxies available to members. However, a not-for-profit corporation may provide in its by-laws other means of voting (by mail, telephonic or electronic means) in addition to or in place of voting by proxies (section 67 of ONCA).
Learn more about Ontario's Not-for-Profit Corporations Act