New(ish) rules for nonprofits in Ontario

Is your organization a non-profit incorporated in Ontario? If yes, this applies to you!

The Ontario Not-for-profit Corporations Act (ONCA) came into effect on October 19, 2021. (Sorry – we drafted this a year ago, and then got sidetracked!)

Previously, Ontario not-for-profits and charities were governed by the Ontario Corporations Act. Now, if your organization is a non-profit or charity that is incorporated in Ontario, you still have 2 years to update and file your governing documents (deadline Oct. 18, 2024).

Note: this applies to organizations incorporated in Ontario. If your organization is incorporated federally, this Act doesn’t apply. (Equivalent federal legislation was enacted a few years ago.)

What you need to do

• Understand the new law. It can be found here: https://www.ontario.ca/laws/statute/10n15#BK44. However, we found this link to be a very useful resource and highly recommend you read through it. It summarizes the ONCA in simple language. We have also called out some important points below.
• Review your existing articles of incorporation, bylaws, and any amendments to determine what needs to be revised.
• File your updated documents by October 18, 2024. If you don’t make updates, the new ONCA bylaws will automatically replace them, regardless of what you may have done internally – and this may have consequences you don’t expect, or even be aware of! Note: For charities, you also need to file your updated bylaws with CRA. Failing to do so could impact your charitable status.

What do we want to tell you about?

We’ve read through the entire Act (you’re welcome) and wanted to focus on a couple of areas – specifically, audit requirements and matters affecting the Board of Directors. There’s lots more you should know, but we don’t have space for it here. See the above for the whole package.

We’re pleased to note that – although most of the Act was drafted before COVID – it recognizes that a lot of activity has shifted online, or to a hybrid model.

Audits:

Detail – see here. The default arrangement is that all that NFPs are required to have an audit unless the members vote otherwise (if allowed). Here are the get-outs:

• If you are a charity or receive $10k in arm’s length donations in a year, and your revenue is >$500k in a year – you’ll be getting an audit. If your revenue is less than $500k in a year, your members can pass an extraordinary resolution every year to downgrade this to something less expensive.
• If you’re a different sort of non-profit, then if your revenues are >$500k, your members can elect (again every year) to downgrade from an audit to a review (basically, an audit-lite, a bit less expensive). Or you can downgrade further if you’re smaller than $500k in revenues.

Also note that – regardless of how your members elect – you may already have a requirement for an audit in your bylaws. Or, commonly, an external party (eg. a granting body) may require one.

Oops. we failed to comply. Now what? Well, this is the tricky one. We’re not for a moment suggesting that you don’t comply with your legal obligations. But…we’ll comment that we have not seen anything in the way of enforcement action, forcing entities to get an audit, under fairly similar old rules. In our view, the primary purpose of this requirement is to give a method for stakeholders to hold the entity accountable for its finances, subject to the legal “downgrade” options built into the Act.

Directors and Board Meetings

• Consent in writing: Directors must consent to act, in writing: A director is not legally a director until they consent in writing. (Section 24). This is a key one. Many smaller non-profits have less formal procedures or documents, but you don’t want to miss this. It’s important, as directors have legal obligations for things like payroll or HST.
• Number of directors, and length of term: A minimum of 3 directors is required, and your articles should specify min or max numbers (Section 22). The default term of office is one year, but your articles can provide a term of up to 4 years, with an option for re-election. (Section 24). (BTW, directors have to vote in person – they can’t vote by proxy.)
• Directors – employees or members? Directors don’t need to be members, although it’s fairly conventional. If you feel they must be members, you must put this in your bylaws. (Section 23) Employees can be directors, however, if your organization is a charity only ⅓ of the directors can be employees. (Section 23).
• Director payment, and conflicts of interest: The law lays out rules relating to conflicts of interest: they must be disclosed, and a director with a conflict of interest can’t vote on matters that are related to the transaction or contract in question. They also have to recuse themselves from the part of the meeting at which it is discussed. (Section 41). You can’t try to eliminate these requirements via your bylaws. That said, a non-profit can pay its Directors a reasonable amount for services unless the bylaws prevent it. Refer to this document for details: Ontario Government Publication on Payments to the director and connected persons
• Meeting location: Unless your bylaws specifically prohibit it…You can now meet online. The legislation acknowledges reality!

And, while we’re talking about directors…. it’s a REALLY good idea to have comprehensive Director & Officer insurance in place. Review and renew it each year!

What else?

There are also some fairly significant requirements about member meetings, who can vote at those meetings (including by proxy), and who can be a member of your organization. We encourage you to read the material linked above to make sure you understand how it might affect you!

How pervasive are these changes?

Overall – not enormous. But there are some non-trivial items. Please read, discuss within your non-profit, and call if you’d like to discuss!

Usual disclaimers: This blog is intended for general information and not to be relied upon for actions specific to your organization, etc.

Thank you!

Margaret & Jules