Canada: You Have To Know Who Your Members Are (And Know How To Contact Them)

Miller Thomson LLP's Social Impact Group has produced a number of key articles this year to remind Canadian charities and non-profits ("NPOs") that it is imperative to maintain accurate and up-to-date books and records for their organizations. Such legal information may seem obvious, but it is our experience that maintaining up-to-date books and records oftentimes takes a back seat to the operations of the charity or NPO. Although this may be understandable as people working in the sector are often very busy, leaving such administrative duties to a future date can create increased exposure to liability for the organization and lead to much higher costs to address problems that may arise.

The members of incorporated charities and NPOs in Canada are sometimes compared to for-profit shareholders insofar as the appropriate members must confirm the decisions of the board on fundamental changes to the organization. Such fundamental changes include amending by-laws, changing the incorporation documents, amalgamating with another charity or revoking charitable status and dissolving the corporation. When an organization is ready to make these types of decisions, it needs to be ready to notify its membership in a timely manner; however, if it does not have an up-to-date list of members, then determining who is a member and who is not can be a costly exercise, which may be riddled with unnecessary uncertainty.

In this vein, this article highlights the importance of incorporated charities and NPOs maintaining accurate and up-to-date records of their members. It also addresses key information about best practices that charities and NPOs should consider adopting to comply with their legal obligations and be prepared for upcoming fundamental changes.

Why are maintaining accurate and up-to-date membership lists important?

The legal obligations of charities and NPOs to comply with recordkeeping requirements cannot be understated. Although, in practice, many of these organizations are particularly lax when it comes to their membership lists, the failure to maintain accurate books and records is in some provinces an offence punishable by fine and imprisonment. By regularly updating their membership lists, charities and NPOs will be able to fulfill requests for information from regulators like the Canada Revenue Agency or other government agencies. They are also reducing their risk of costly litigation.

All corporations incorporated under the federal Canada Not-for-Profit Corporations Act (the "CNCA") are required to maintain a full registry of their members. Federal corporations should take precautions to ensure that this information is not lost, destroyed or falsified. Additionally, corporations should correct any inaccuracies in their books and records. Provincial legislation places similar obligations on charities and NPOs. Under Ontario's Not-for-Profit Corporations Act (Ontario) (the "ONCA") and Corporations Act (Ontario) (the "OCA"), corporations are required to maintain a registry of their members and to ensure that this information is accurate and up-to-date.

Further, the CNCA, ONCA and OCA permit members to examine the corporation's membership registry once they have made a statutory declaration and paid a fee. However, information regarding a corporation's members may only be used for purposes permitted by the applicable legislation. In Ontario, such purposes include requisitioning a meeting of members and contacting other members to influence how they will vote at a members meeting. The Court of Appeal for Ontario stated in a 2006 decision that the right to access membership lists established by the OCA is to be interpreted broadly to "reflect the importance assigned by the legislature to the ability to access shareholder or membership information."¹ The Court further noted that a purpose connected with a corporation may (but does not necessarily) include "a purpose directly linked to the corporation's formal objects and purposes as reflected in its constating and other corporate documents."²

Corporations that are registered charities also have an obligation to maintain books and records which satisfy to the Minister of Revenue that it is in compliance with its tax obligations under the Income Tax Act (Canada).

Best practice: Make membership criteria clear in your by-laws

A charity or NPO's by-laws are a practical document that should be designed to satisfy the corporation's needs and actual practices insofar as they are compliant with the corporation's statutory obligations. By-laws govern the relationship between a corporation's members and its directors.³ As such, it is critical that charities and NPOs carefully draft their by-laws and constating documents to ensure that membership matters are subject to clear procedures and related information cannot be used for improper purposes.

By-laws can be used as a tool for charities and NPOs to know with certainty who is a member and who is not. By-laws can be drafted to include the following: qualifications for membership, membership admission procedures, terms of memberships (and precisely when a member is considered to have resigned or terminated their membership), the positive steps members must take in order to continue to be a member and membership disciplinary procedures (including procedures for removing members). It is a critical best practice for charities and NPOs to draft by-laws which are specific about their membership.

Charities and NPOs that neglect to draft – and follow – by-laws that speak clearly to membership matters are at an increased risk of litigation. A 2018 case highlights the fact that expensive litigation can arise with regard to who is a member and who is not when the charity desires to make fundamental changes to its organization.⁴ For charities and NPOs that want to move forward with certainty on fundamental changes to their organization, laying down clear, unambiguous procedures governing their membership is essential, and following them is an essential best practice.

Footnotes

1 Lawrence v Toronto Humane Society, (2006), 271 DLR (4th) 329 at para 53 (ONCA).

2 Ibid at para 87.

3 Burke-Robertson, R. Jane, Corporate and Practice Manual for Charities and Not-For-Profit Corporations, (Toronto: Carswell, 2013) at 1-15.

4 The Campaign for the Inclusion of People who are Deaf and Hard of Hearing v. Canadian Hearing Society, 2018 ONSC 5445.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.