Canada: Not-For-Profit Law Update - Fall 2011

INTRODUCTION

Welcome to the Fall 2011 issue of the BLG Not-for-Profit and Charities Law Update. It is hard to believe that "Fall 2011" is upon us. This was the deadline given for the coming into force of the new Canada Not-for-Profit Corporations Act. The latest information is that the new federal Act will be in force late this year or very early next year.

In our last update (Spring 2011, available online here), we addressed some special issues under the federal Act. In this update we cover some special issues to consider under the new Ontario legislation, which continues to be expected in force late in 2012. We also discuss some issues with social media, look at social clubs under the Ontario Act, and consider extra-provincial registrations for not-for-profits. There also is a look at the legislation around accessibility for Ontarians with disabilities and a discussion of the use of trusts.

As always, we welcome your input and insights and appreciate your feedback. We also wanted to mention our annual NFP Symposium happening this year on November 10, 2011. More information will follow.

CHARITABLE TRUSTS: ANOTHER OPTION TO ESTABLISH A CHARITY

By Tamara G. Wong

Charities are commonly established as a corporation or society. However, the impending proclamation into force of the Canada Not-For-Profit Corporations Act will have significant implications for charities established as federally incorporated corporations and may necessitate a look at other methods of establishing a charity. In certain circumstances, it may be appropriate to establish a charity using a charitable trust. This article considers some of the advantages and disadvantages of using a charitable trust to establish a charity.

A. Advantages of Using a Charitable Trust

Charitable trusts have advantages which are not conferred on corporations. These advantages include, but are not limited to:

1. flexibility;
2. privacy; and
3. the relatively minimal cost and time required to establish a charitable trust.

Flexibility

Charitable trusts are governed by common law, rather than statute. This means that charitable trusts are not incorporated and are not subject to corporate rules. Unlike corporations, a charitable trust has no federal or provincial reporting obligations and will not be required to prepare audited financial statements, unless otherwise specified in the document creating the trust.

The administration of the charitable trust will be governed by the terms of the written document creating the trust. The document creating the charitable trust may be drafted to give the trustees maximum flexibility in the administration of the trust, including to:

1. give the trustees broad discretion in fulfilling the objects of the charitable trust;
2. permit the trustees to establish their own operational rules for the charitable trust;
3. permit the trustees to act as trustees indefinitely and to provide for replacement trustees; and
4. permit amendments to be made to the objects and administration of the charitable trust.

Privacy

Since charitable trusts are not incorporated, unless the charitable trust becomes a registered charity with the Charities Directorate of Canada Revenue Agency, the trust records are not a matter of public record. This is particularly advantageous in the creation of private foundations where privacy is often a principal concern.

Time and Cost to Establish a Charitable Trust

Establishing a charitable trust is often quicker and more cost effective than incorporating a corporation. Unlike a corporation, there is no requirement to reserve a corporate name, register the corporation or pay any registration fees. In addition, there are no annual reports to maintain and file.

B. Disadvantages of Using a Charitable Trust

Liability Exposure

Perhaps the principal disadvantage to charitable trusts is the potential personal liability of the trustees for the debts and actions taken by the trustees of the charitable trust. Trusts do not have the same limited liability protection as corporations. Trustees are fiduciaries and are obliged to manage the property of the trust as a reasonable person would manage his or her own affairs. If a trustee fails to meet this standard, then he or she could be found liable for any losses.

However, steps may be taken to minimize the personal liability of trustees. Often, the document creating the trust will include a provision which limits the liability of trustees provided that they have acted in good faith and indemnifies the trustees for any debts, obligations or liabilities the trustees may incur in acting as trustee. In addition, it is becoming increasingly common for insurance to be obtained to protect trustees from the variety of claims that can arise from the management and administration of a trust. Another option is to have a corporation act as trustee of a charitable trust.

C. Conclusion

Although charitable trusts may not be appropriate for all charities, in light of the impending changes to federally incorporated corporations, serious consideration should be given to a charitable trust as an alternative to a corporation or society for the establishment of a charity.

DEFAMATION LAWS PUT SOCIAL MEDIA USERS AND EMPLOYERS AT SERIOUS RISK

By Michael C. Smith

Statements posted online that negatively impact the reputation or image of another person, business or product may be considered defamation, and present a legal risk to the person who authored the post. This is as true for charities and Not-for-profit organizations as it is for business corporations. Individual social media users should be concerned, but employers face even greater risk. Each time an employee posts a negative comment online while at work, or from a work asset such as a laptop or Smartphone, the employer is exposed to liability. So far, Canada hasn't seen a flood of social media-related defamation lawsuits, but Canadians spend more time online than any other nationality, which means it could only be a matter of time.

A. Businesses At Risk

Employers are exposed to liability every time an employee tweets or posts a negative comment while at work or from a work asset such as a laptop or Smartphone. Whether that employee uses a work-assigned Smartphone to post a personal opinion about a neighbour, or knocks a competitor while tweeting for business purposes, the legal ramifications will almost certainly include their employer. The same goes for internal postings. Employers should be wary of e-mails among staff that slam vendors or discourage others from doing business with a supplier.

Defamation is not just limited to the specific individuals who tweet or blog about a business or product. Employers must be aware that they are at risk of unwittingly becoming publishers of their employees' statements. The fact that businesses have 'deep pockets' is just added incentive for someone to launch a defamation lawsuit against an employer.

B. BLG Offers These Five Tips for Businesses to Help Mitigate Liability

1. Establish clear guidelines and policies for employee use of social media in the workplace and identify specific rules and expectations for the use of company assets such as laptops and smartphones. Consider building those policies into employment contracts, and have everything reviewed by legal counsel.
2. Clearly communicate and educate employees on the policies for using social media while at work and on company assets. Consider holding webinars or staff training sessions so everyone is clear on the guidelines. Staff must understand the consequences of defamatory statements.
3. Establish policies for making employees accountable for their social media posts that are either work related or made from a work asset. Just because the business is not sued after a negative publication does not mean that it could not have been or should not have been. "Near misses" offer good training scenarios.
4. Establish a team of reviewers that can check outbound comments before they are posted. A second set of eyes on significant postings is good practice.
5. More informally, encourage staff to pause and reflect before they send any negative comments, and have a colleague review the message before it is sent. A "cooler head" reviewing will often result in revisions to tone down the message, protecting the business from distracting and expensive lawsuits.

C. Canadians Rely on Social Media

Online reviews are a fertile area for an increase in defamation claims. A recent study indicated that nearly two-thirds of consumers read and are influenced by customer-written product reviews on the web. If society relies on the web for advice on purchasing decisions, a negative review could significantly impact the image and reputation of a product or business, and put the author of the review at serious risk for a lawsuit.

We are likely to see an increase in defamation suits related to social media, but we are also going to see people become a lot more careful in what they say online once the exposure to defamation suits is more widely understood. That could undermine a lot of what people see as the value and purpose of social media, which would be an interesting turn of events.

ONTARIO NOT-FOR-PROFIT CORPORATIONS ACT: SOME SPECIAL ISSUES TO CONSIDER

By Victoria Prince

What follows is a summary of some of the key (or special) issues under the new Ontario Not-for-Profit Corporations Act (the New Act).

A. Background

Currently, not-for-profits incorporated in Ontario are governed by the Corporations Act (Ontario) (the Current Act). The Ontario government has passed legislation to replace the Current Act. The Not-for-Profit Corporations Act, 2010, has not yet been proclaimed in force; that is anticipated to occur by the end of 2012. In the meantime, organizations governed by the Current Act are well served to review their letters patent, by-laws, policies and procedures to determine how best to transition to the New Act.

Rather than include a detailed discussion of the New Act, this article focuses on a few points of interest.

B. Some Special Issues

Public Benefit Corporations

The New Act includes the concept of public benefit corporations (or PBC.) Charities are PBCs as are other entities that receive $10,000 or more a year from the government or persons who are not members, directors, officers or employees. The assets of a PBC must be distributed on liquidation to another PBC. There are also implications for the type of financial review required. Note also that no more than one-third of the directors of a PBC may be employees.

Audit Committees

Under the New Act, if a corporation puts an audit committee in place, the majority of the committee members cannot be officers or employees. The definition of "officers" includes the chair of the board, the vice-chair, the president, vice-president, secretary, assistant secretary, treasurer, assistant treasurer and general manager. Thus, if some or all of those people are on the audit committee, the committee must be sufficiently large to include other members who are not officers or employees.

Information in the Articles

Currently, most NFPs have little (if anything) in their letters patent around membership rights. Under the New Act, the articles (which will replace letters patent), must create the classes of membership and must state the voting rights (otherwise all classes vote). The by-laws will set out the details regarding membership, such as the conditions for membership, the manner of transferring or withdrawing.)

Members' rights

The New Act provides for a number of members' rights, including:

• the right to requisition meetings
• the right to nominate directors
• the right to vote by proxy
• the right to access records and membership lists
• the right to submit proposals to meetings

There are details around each of these rights – such as timing, percentage of members required to activate the right, and the like. There also are rights to dissent and force an appraisal under the New Act.

Voting rights

The New Act includes rights to vote even for non-voting members in certain circumstances. For example, there is a right to vote on the sale, lease or exchange of all or substantially all of the property of the corporation. In that case, the members of a class are entitled to vote separately as a class if they are affected differently from other classes. Similarly, a vote on dissolution requires a vote of each class whether or not the members are otherwise entitled to vote. There are also rights to vote on amalgamation and on continuance to another jurisdiction in certain circumstances. As well, amendments to the articles that impact on certain members' rights also require a vote by members even if the members are otherwise non-voting.

Quorum

The Current Act provides for quorum for a directors' meeting of a minimum of two-fifths. The New Act sets a minimum of a majority of a fixed number of directors or the minimum number of a floating board. (So, if there were a fixed board of 10, a majority would be six. If there was a floating board of three to 10, the minimum quorum would be three.)

Directors Duties

Directors are responsible for the management of the corporation and have the duty to:

• act honestly and in good faith with a view to the best interests of the corporation
• exercise the care, diligence and skill of a reasonably prudent person
• disclose any conflict of interest
• comply with the legislation and the corporation's articles and by-laws

Disputes

The New Act also includes provisions around how to deal with disputes between members and/or directors about the running of the corporations. There are also provisions around the discipline and expulsion of members.

As always, we would be happy to assist with specific questions and to help with the development of the documents required to comply with the New Act.

SOCIAL CLUBS AND THE NFPA

By Derek Powers

After one of the wettest springs in history, Ontario was blessed with a hot, dry summer, allowing many to participate in various activities. One of the questions raised as Ontarians returned to their favourite social activities was "how will the new Not-for-Profit Corporations Act, 2010 (the New Act) affect my favourite sports or social club?"

Once in force, the New Act will replace the Corporations Act (Ontario) (the Existing Act), which currently regulates Ontario's not-for-profit corporations, including those with share capital having objects of a social nature (Social Club).

The Exiting Act will continue to apply to Social Clubs for up to five years after the New Act comes into force. Social Clubs will have five years to apply, by way of special resolution of the shareholders, to be continued under the New Act as a corporation without share capital, as a corporation under the Business Corporations Act (Ontario), or as a co-operative corporation under the Co-operative Corporations Act (Ontario) (collectively, the Continuing Acts). If a Social Club fails to continue under one of the Continuing Acts by the fifth anniversary of the coming into force of the New Act, it will be dissolved, subject to saving provisions contained in the Existing Act.

While Social Clubs will have five years to make the decision faced by other organizations within three years, they will have to consider the advantages and disadvantages of each of the Continuing Acts. We will explore this further in future updates.

TO REGISTER OR NOT TO REGISTER

By Geneviève Langlais

A. Introduction

Not-for-profit corporations all over Canada seem to be increasing their presence in many provinces and territories. Whether their presence is simply to provide members with a local (i.e. provincial or territorial) contact or to actively participate and raise funds in those provinces or territories, not-for-profit corporations aren't always aware that they may need to register in order to be active in that province or territory.

The following information summarizes some, and by no means all, of the registration and ongoing obligations that stem from operating in jurisdictions other than the one in which the not-for-profit corporation was incorporated. Note that federally incorporated not-for-profit corporations are not necessarily exempted from these requirements. We will consider the requirements in some jurisdictions this time, and will consider several more in our next edition.

B. Jurisdictional Requirements

Alberta

According to the Business Corporations Act of Alberta, a corporation (including a not-for-profit) that "carries on business" in Alberta is required to register with the province. A corporation carries on business in Alberta if:

1. its name, or any name under which it carries on business, is listed in a telephone directory for any part of Alberta;
2. its name, or any name under which it carries on business, appears or is announced in any advertisement in which an address in Alberta is given for the extra-provincial corporation;
3. it has a resident agent or representative or a warehouse, office or place of business in Alberta;
4. it solicits business in Alberta;
5. it is the owner of an estate or interest in land in Alberta;
6. it is licensed or registered or required to be licensed or registered under any Act of Alberta entitling it to do business;
7. it is, in respect of a commercial vehicle as defined in the Traffic Safety Act, the holder of a certificate of registration under the Traffic Safety Act, unless it neither picks up nor delivers goods or passengers in Alberta;
8. it is the holder of a certificate as defined in section 130 of the Traffic Safety Act, unless it neither picks up nor delivers goods or passengers in Alberta; or
9. it otherwise carries on business in Alberta.

In addition to the initial registration, annual filings are required by the province.

If a corporation does not register within 30 days after it commences carrying on business in Alberta, or fails to meet the ongoing obligations (annual returns), the registrar may cancel the registration and has the power to fine the corporation for contravening provisions in the Business Corporations Act.

British Columbia

Extra provincial societies may apply to register in the Province of British Columbia, in accordance with the Society Act and may only conduct operations in British Columbia if registration is granted. An extra-provincial society is defined in the Society Act as a society or association, incorporated or otherwise formed outside British Columbia, and includes a branch of that society or association, but does not include a society or association, incorporated or otherwise formed to acquire profit or gain or that has a capital divided into shares.

In addition to the initial requirements upon registration, annual reports must be filed with the province within 30 days following each annual general meeting.

An unregistered society cannot maintain a court proceeding in British Columbia in connection with its operations. Additionally, it cannot acquire or hold an interest in land in the province or register title to land under the Land Title Act unless it is registered. The legislation also provides that a corporation that contravenes the act is liable to a fine.

Manitoba

Non-share capital corporations (i.e. not-for-profit corporations) must register under the Corporation Act of Manitoba in order to conduct business in Manitoba. A corporation is carrying on business in Manitoba if it:

1. has a resident agent or representative, or a warehouse, office or place of business in Manitoba;
2. has a name and address listed in a Manitoba telephone directory;
3. has its name and address included in a Manitoba advertisement for the business or any product of the corporation;
4. is the registered owner of real property; or
5. otherwise carries on business in Manitoba.

Once registered, the corporation must file its annual return on the date not later than the last day of the month immediately following the corporation's anniversary month.

Every corporation, officer, director, agent and/or representative acting on behalf of the corporation is guilty of an offence and liable for a penalty of $50 for each day on which business is carried on while unregistered.

Northwest Territories

The Business Corporations Act of the Northwest Territories establishes that every extra-territorial corporation shall be registered within 30 days after commencing to do business in the Northwest Territory. A corporation is carrying on business in the Northwest Territory if it does any of the following:

1. its name is listed in a telephone directory;
2. its name appears or is announced in any advertisement in which an address in the NWT is given for it;
3. it has a resident, agent, warehouse, office, or place of business/operations;
4. it solicits business;
5. it owns an estate or land interest;
6. it is licensed or registered (or required to be) under any Act entitling it to do business or carry on operations; or
7. it otherwise carries on business.

Extra-territorial corporations must file an annual return on or before the last day of the month following its anniversary month. The anniversary month is the same month in which the corporation was incorporated.

An extra-provincial corporation, other than a federal corporation, that is not registered under the Business Corporations Act may not commence or maintain an action in respect of a contract made within the province in the course of carrying on an undertaking. Notwithstanding this, if the corporation becomes registered the action may be maintained as if the corporation had been registered before beginning the action. A corporation that contravenes the Business Corporations Act is guilty of an offence and is liable to a fine.

Nunavut

Extra-territorial corporations must register pursuant to the Business Corporations Act of Nunavut within 30 days of commencing to carry on business in Nunavut. Notably, Schedule B of the legislation sets out a fee for the registration of an "extra-territorial corporation that does not carry on business for gain". An extra-territorial corporation carries on business if:

1. its name, or any name under which it carries on business or operations, is listed in a telephone directory for any part of Nunavut;
2. its name, or any names under which it carries on business or operations, appears or is announced in any advertisement in which an address in Nunavut is given for the extra-territorial corporation;
3. it has a resident agent or representative or a warehouse, office or place of business or operations in Nunavut;
4. it solicits business in Nunavut;
5. it is the owner of any estate or interest in land in Nunavut;
6. it is licensed or registered or required to be licensed or registered under any Act in Nunavut entitling it to do business or carry on operations; or
7. it otherwise carries on business or operations in Nunavut.

Annual filings must be filed with the Registrar in order to remain registered. An unregistered corporation is unable to commence any action or proceeding in Nunavut and may be subject to a fine for contravening the legislation.

Saskatchewan

Under the Non-Profit Corporations Act, 1995 of Saskatchewan, not-for-profit corporations must register if they are carrying on business in the province. A corporation is carrying on business if it holds title or interest in land, or if it maintains an office, warehouse, place of business or telephone number in the province.

An annual return must be filed on a yearly basis.

A corporation that is not registered pursuant to the legislation is not capable of commencing or maintaining any action or other proceeding in a court respecting a contract made in whole or in part in Saskatchewan in the course of, or in connection with, its activities. A corporation that fails to comply with the legislation is liable to a fine.

Yukon

According to the Business Corporations Act of the Yukon, extra-territorial corporations are required to register in the Yukon within 30 days after beginning to carry on business.

A corporation carries on business in the Yukon if it transacts any of the ordinary business of an extra-territorial corporation whether or not the corporation has a resident agent or representative or a warehouse, office or place of business in the Yukon.

An annual return must be filed with the registrar in order to remain registered. An unregistered corporation, which carries on business, cannot commence or maintain any legal action and is liable to a fine for contravening the legislation.

C. Conclusion

As evidenced above, there are slight variations in the registration requirements from one jurisdiction to another. However, one aspect that seems to remain constant is the liability to a fine if the jurisdictional legislation, which often includes the requirement to register, is contravened. Additionally, filing requirements also vary in terms of the information required, the fees, the name searches that must be done, etc.

As such, prior to operating in a jurisdiction other than the one in which the not-for-profit corporation was incorporated, corporations are encouraged to consider the requirements and seek legal advice to fully understand the implications at the outset and in the long run.

LEGISLATION UPDATE: ACCESSIBILITY STANDARDS IMPOSE OBLIGATIONS ON EMPLOYERS IN ONTARIO

By Robert W. Weir

On July 1, 2011, the Integrated Accessibility Standards came into force through Ontario Regulation 191/11. The Accessibility Standards were developed by the Ministry of Citizenship and Immigration pursuant to the powers established by the Accessibility for Ontarians With Disabilities Act, 2005 (the AODA). The purpose of the AODA is to develop, implement and enforce accessibility standards for Ontarians with disabilities with respect to goods, services, facilities, accommodation, building, structures, premises and, importantly, employment. It should be noted that customer service standards enacted in 2007 under AODA must be in place by January 1, 2012 for most businesses and organizations in Ontario that provide goods or services to members of the public.

The Accessibility Standards have broad application, effectively applying to any organization that provides goods, services or facilities to the public or other third parties and that has at least one employee in Ontario. Such organizations are referred to in the regulation as an "obligated organization". Although the application is broad, the Accessibility Standards leave organizations with plenty of time to achieve compliance. For example, every obligated organization shall develop, implement and maintain policies governing how the organization achieves or will achieve compliance with the Accessibility Standards. The dates for achieving compliance with this obligation are staggered depending on the nature and size of the organization in the following manner:

• For the Government of Ontario and the Legislative Assembly, January 1, 2012;
• For all designated public sector organizations with 50 or more employees, January 1, 2013;
• For all designated public sector organizations with fewer than 50 employees, January 1, 2014;
• For all other obligated organizations with 50 or more employees (Large Organizations), January 1, 2014; and
• For all other obligated organizations with at least one but fewer than 50 employees (Small Organizations), January 1, 2015.

Designated public sector organizations include school boards, hospitals, colleges and universities.

The Accessibility Standards further require all designated public sector organizations and Large Organizations to establish, implement, maintain and document a multi-year accessibility plan.

The plan will outline the organization's strategy to prevent and remove barriers to accessibility. The plan will be available to the public and must be updated every five years. Large designated public sector organizations must have a plan by January 1, 2013 while small designated public sector organizations and Large Organizations must comply by January 1, 2014. Small Organizations are exempt from the requirement to develop an accessibility plan.

The Accessibility Standards require employers of an obligated organization to train their employees and volunteers on the requirements of the Accessibility Standards and on the Human Rights Code as it pertains to persons with disabilities. Training must take place as soon as practicable but, again, compliance with this obligation is staggered depending on the nature and size of the organization from January 1, 2014 for large public sector employers to January 1, 2016 for Small Organizations.

The Accessibility Standards also create Employment Standards that apply to all obligated organizations. The Employment Standards will require these employers to:

• Notify their employees, all job applicants and the public about the availability of accommodation for applicants with disabilities in their recruitment process;
• Provide for suitable accommodation at the request of a job applicant;
• Notify successful applicants of its policies for accommodating employees with disabilities;
• Inform their employees of its policies to support employees with disabilities;
• Where an employee with a disability requests it, consult with the employee to provide accessible formats and communication supports for information that is needed to perform the employee's job and information that is generally available to employees in the workplace;
• Provide individualized workplace emergency response information to employees who have a disability;
• Except for Small Organizations, develop and have in place a written process for the development of documented individual accommodation plans, which plans shall include detailed information respecting the development and review of the accommodation plan; and
• Except for Small Organizations, employers must develop and have in place a return to work process for employees who have been absent from work due to a disability and require disability-related accommodation in order to return to work.

Compliance with the Employment Standards is in accordance with the following time lines:

• For the Government of Ontario and the Legislative Assembly, January 1, 2013;
• For all designated public sector organizations with 50 or more employees, January 1, 2014;
• For all designated public sector organizations with fewer than 50 employees, January 1, 2015;
• For Large Organizations, January 1, 2016; and
• For Small Organizations, January 1, 2017.

Employers are also required to take into account the accessibility needs of employees with disabilities in any performance management, career development and advancement or re-deployment process in their workplaces.

Some six years in the making, the Accessibility Standards set out comprehensive guidelines for breaking down barriers faced by disabled persons. In addition to employment, the standards address the accessibility of public transportation, the sale of goods, the provision of services and encompass a myriad of commercial and other activities. Employers will need to start thinking about developing policies and implementing the requirements now notwithstanding the fact that the government has provided lengthy time periods for compliance. In many cases, compliance will simply be a matter of reviewing and modifying existing policies and practices. In others, compliance will require the completion of new policies and training. In all cases, employers should use the Accessibility Standards themselves as the template and guide for preparing those policies and modifying practices.

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