While Ontario’s non‑profit law sorely needs updating, the Ontario government’s recent initiative to do so has resulted in a deeply flawed replacement.

In drafting the new ONCA, the government prioritized two objectives:

• Ensuring it closely mirrors the law applicable to businesses
• Empowering members to participate more fully in a corporation’s activities.

While there’s much to modernize about non‑profit corporate law, the introduction of many business law concepts was not tempered by the differing realities of the non‑profit world.

Couple that with a highly legalistic drafting style, the new Act will be inaccessible for many, and  force many less sophisticated non‑profits to seek more legal advice than they might have in the past.

The result: an Act that is certainly not responsive to, or knowledgeable about, the sector.

Consider what could have happened if the objective was, instead, to encourage the growth and development of an increasingly healthy and vibrant no-profit sector through

• the removal of unnecessary regulatory barriers, and
• a supportive corporate regulatory regime

That objective received scant attention, and it was the utter failure of the Ontario government to deliver an Act that even came close to achieving that objective, that led the Ontario Non-profit Network to seek some key amendments (pdf) to address some of the more blatant problems, and delay proclaiming it until those amendments were made.

Instead, the Minister refused to even meet ONN. At this point, it seems a waste of ONN’s resources to pursue delay further.

Here were the key ONN asks:

• Fix the definition of public benefit corporation (PBC) to include a permanent asset lock, so that the public – and government ‑  can feel confident that their financial support of a PBC will always remain devoted to social purposes, and its assets remain permanently in the public domain for the public good, and not private gain.

With the current wording, many non‑charitable non‑profit organizations will float in and out of PBC status (depending on when their last government grants, or donations in excess of $10,000 in a year, were received).

• The new Act empowers members to make proposals to members meetings that have the potential to make binding decisions, overriding and eclipsing the power and authority of the directors to manage the affairs of the corporation.

This was, simply put, an error, that needs to be fixed.

• Many non‑profits encourage their supporters to become non‑voting members, as one aspect of an effective engagement strategy – there are an estimated three million non‑voting members in sports organizations alone. But the new Act, in a number of circumstances, requires that these non‑voting members be given the vote.

It will be necessary for many of those organizations to embark upon a careful strategy to terminate those non‑voting memberships to avoid unintended empowerment.

This provision, like so much else that is wrong with this Act, stems from the quite slavish adoption of business corporation wording, designed to protect investors who purchased non‑voting shares.

Some other flaws:

• The new requirement for mandatory solicitation of proxies for members’ meetings has the potential to confuse, and to generate far more proxy battles than we’ve seen in the non‑profit world.
• Audited financial statements now must be available at least 21 days prior to any AGM – this requirement will mean AGMs will have to be delayed significantly from present practice.
• There’s now a dissenting right that, in certain circumstances, entitles members of PBCs to payment of the fair value (undefined) of the member’s membership interest. This right will create conflict, and potential financial difficulties, if exercised.

The new federal Act, enacted by the Harper government, adopted just the same approach, and contains many of the same flaws.

Filed in: Not for Profit Law

Tags: ONCA, ONN, Ontario Non-profit Network, Ontario Not for Profit Corporations Act, Public benefit corporation