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Where should we incorporate?

You can choose to incorporate your nonprofit under federal law, which is the Canada Not-for-Profit Corporations Act (CNCA), or under Ontario law.

If you decide to incorporate provincially, you have to do it under Ontario’s Corporations Act (OCA), because Ontario’s Not-for-Profit Corporations Act (ONCA) isn’t in effect yet. This means, when it does take effect in a few years, you will likely have to make changes to your letters patent and bylaws so that they comply with it.

To avoid having to make changes later, many lawyers recommend that nonprofits incorporate under federal law unless it’s not suitable for them.

There are several differences between CNCA and the OCA and we compare the main ones below.  Understanding the differences may help you decide whether CNCA is suitable for your nonprofit, or whether the extra work involved when you incorporate provincially is worth it.

You may not want to incorporate federally if you want to:

  • have ex-officio directors
  • delegate important powers to board committees.

But you may be able to deal these issues with the help of a lawyer.

 

CNCA

OCA

Minimum number of directors

3 for soliciting corporations

1 for non-soliciting corporations

(s.125)

3

(s.283(2))

Number of directors

Your articles may give a range, for example,  3-7 directors (s.133)

Your articles must have a fixed number of directors (s.283(2)), although you may change the number by special resolution (s. 285(1))

Maximum director term length

4 years (s.128(3), Reg 28(1)) but there is no prohibition on standing for re‑election

5 years (Reg 13), but there is no prohibition on standing for re‑election

Ex-officio directors

Not allowed (s.128(3)), although the bylaws may provide that a stated number of directors must have the prior approval of the body wishing to appoint the ex-officio directors

Allowed (s.127)

Board’s ability to delegate its power to a committee

There are some powers the board cannot delegate (s.138(2))

The board can delegate any power as long as:

  • there are a minimum of 6 directors on the board, and
  • the bylaw allowing it to delegate power was approved by a special resolution (s.70)

Board’s power to appoint directors if members didn’t fill all seats at members’ meeting, or a vacancy later arises

The Board can fill empty seats as long as your articles say so. (s.128(8), or without a provision in the articles, if the vacancy subsequently arose 132)

The Board can fill empty seats however created (s.288)

Directors consent to act as directors

All directors must consent. They can do this by:

  • being present when elected,
  • acting as directors, or
  • consenting in writing

(s.128(9))

 Not required. (s.286(3))

You may want to incorporate federally if you want to give non-voting members the right to vote on important decisions. For example, if you’re starting a little league and want to allow the children to sign up as non-voting members.

CNCA

OCA

Powers of non-voting members (if you have them)

Non-voting members have the right to vote on important issues, such as:

  • changes to membership terms or rights
  • mergers with another nonprofit
  • the sale of a large part of the nonprofit’s assets
  • closing down the nonprofit (s.197, 199, 214, 221)

Non-voting members only have the powers your letters patent and bylaws give them

Member class veto

If you have more than one class of members, each class of members can vote on important decisions,  whether or not they are voting members. Important decisions include:

  • changes to membership rules
  • mergers with another nonprofit
  • closing down the nonprofit
  • the sale of large parts of the nonprofit’s assets

(s.197, 199, 206, 214, 221)

Only voting members can vote on important decisions

Minimum number of votes needed to change membership rules

Membership rules are described in your articles, so you need a special resolution to change them (s.197)

Membership rules are described in your bylaws, so you need a resolution of the board of directors and  an ordinary members’ resolution to change them (s.129)

One of the ways in which members exercise influence is by submitting a proposal (called the requisition under the OCA), which, unless it fits within one of the exceptions, must be discussed at a members’ meeting. Only one member is required under the CNCA, but the scope of exceptions is broader under the CNCA.

 

CNCA

OCA

Number of members needed to submit a proposal that has to be discussed at an annual members’ meeting

1 voting member

(s.152(6), 163)

5% of voting members

(s.296(1))

Reasons for which a Board can refuse to include a member proposal in the agenda

The proposal can be refused if:

  • it’s a personal claim or grievance
  • it’s not related to corporate business
  • it was presented in the last 5 years and did not get enough support (at least 3% the first time, 6% the second time, 10% after that)
  • it was submitted to get publicity
  • the member didn’t attend a meeting where a proposal they’d submitted was being discussed in the past 2 years

(s.163(6), Reg 67-68)

The proposal can be refused only if:

  • it was submitted to get publicity, or
  • It damages a person or organization’s reputation (s.296(5))

Penalty if proposal refused improperly

The directors may have to pay up to $5,000 in fines, go to jail for 6 months, or both (s.262(1))

The court may also prevent the meeting from happening (s.163(9))

Directors may have to pay up to $200 in fines (s.296(9)), and the Corporation is required to pay for the cost of the requisition if a meeting isn’t held in response to a valid requisition

Inform member if their proposal was refused

Must tell member within 21 days that their proposal was refused (s.163(8) and Reg 69)

No  requirement to tell member  that their proposal was refused

Maximum supporting statement for member proposal

500 words (Reg 64)

1,000 words (296(1))

Cost of circulating proposal

Member pays unless articles, bylaws, or member resolution says they don’t pay (s.163(4))

Corporation pays unless members vote at meeting to say member pays (296(8))

Timing of proposal

The proposal must be submitted 90-150 days before the anniversary of the previous annual members’ meeting (s.163(6)(a) Reg 66)

Notice of proposal must be submitted 10 days before meeting and supporting statement must be submitted at least 7 days before the meeting (s. 296(4)(a))

Minimum number of members needed if proposal is to nominate a director

The default is 5% but your bylaws can set a lower minimum (163(5))

5% (s.296(1))

 

CNCA

OCA

Ways to send notice

You can send notice:

  • by mail
  • in-person
  • electronically, or
  • by posting it on a bulletin board at a location the members go to often at least 30 days in advance

If you have more than 250 members,  you can also post a notice weekly for at least 3 weeks in a municipal newspaper based where most of your members live, or at least once in a periodical that goes out to all members (Reg 63(1))

You can send notice as set out in the bylaws, but if they are silent:

  • by mail
  • in-person, or
  • electronically

For charities, it is enough to post a notice weekly in a municipal paper in which the majority of the members of the corporation reside for at least 2 weeks before the meeting (s.93(1)(a), s.133(2))

Timing of notice

Depending on the way the notice is sent, it must be delivered 21-60 days before the meeting (s.162(1))

 Unless the bylaws provide otherwise, notice must be delivered 10 days before the meeting (s. 93(1)(a), s. 133(1))

Minimum number of members needed to require a members’ meeting be called

5% of members unless your bylaws have a lower number (s. 167(1) Reg 72(1))

10% of voting  members (s.295(1))

Board’s duty to call a members’ meeting in response to a valid members’ request

Board doesn’t need to call a meeting if:

  • one has already been called, or
  • the request deals with business that would be prohibited if it were a proposal (s.167(3))

Board must call a meeting. The Act does not list any exceptions. (s.295(3))

Providing summary of financial statements before annual members’ meeting

The nonprofit must give a summary of financial statements 21-60 days before the meeting or it should tell members how they can access the statements (s.175, Reg 77

The corporation doesn’t need to give financial statements before the meeting

Who can vote at members’ meeting

Anyone who became a member up to the day the meeting notice was sent (s.161(2))

 Each member has one vote unless your bylaws state otherwise (s. 125)

Absentee voting

Besides proxy, electronic, and telephone voting, members can mail in their vote (s.171(1), Reg 74(1))

Proxy, electronic, and telephone voting are allowed but bylaws can limit this. (s.84, 133(1))    

Location of members’ meetings

Anywhere in Canada unless your articles say something else (s.159)

At the head office, or, if the bylaws provide, anywhere in Ontario (s.82(3))

Timing of annual members’ meetings

They must take place no later than 15 months after your last annual members’ meeting but you can ask the government for more time (s.160(2) + Reg 61(2))

They must take place no later than 15 months after your last annual members’ meeting (s.293)

Quorum of members’ meetings

The default quorum is 50%+1 unless your articles or bylaws say otherwise (s.164(2))

There is no default in articles or bylaws, so you must say what it is in your bylaws  (s. 129(1)(i))

Quorum lost mid-way through meeting

The meeting may continue without quorum if the bylaws do not otherwise provide (s.164(3))

The meeting cannot continue without quorum

If you’re a soliciting corporation (under the CNCA, if it received donations or gifts or government grants in excess of $10,000), and you don’t want your financial statements to be available to the public, you may not want to incorporate federally. This is because CNCA allows the public to access the financial statements of soliciting corporation.

 

CNCA

OCA

Send financial statements to government

You must send your financial statements to Corporations Canada if you’re a soliciting corporation. If you’re a non-soliciting corporation then you  send them only when asked (s.176-77)

You don’t need to send your financial statements to the provincial government, unless you’re a charity in which case you send them as part of your annual Report to Canada Revenue Agency

Send bylaws to government

Whenever you update your bylaws, you must send the most recent copy to Corporations Canada within 12 months (s.153 + Reg 60)

You don’t need to send your bylaws to the provincial government

Inaccurate reporting

Anyone who makes a false or misleading statement in a report needed under CNCA may be fined up to $5,000, sent to jail for up to 6 months, or both (s.262(2))

Anyone who makes a false entry in the minute books, registers, or any report may be fined up to $1,000 and go to jail for up to 3 months (s.303)

Financial statements available to public

The public has access to your financial statements if you’re a soliciting corporation

The public doesn’t have access to your financial statements, except for charities

 

CNCA

OCA

Access to records

 Members may have access to  the articles, bylaws, minutes of meetings of members (s.22) and, if the appropriate statutory declaration is submitted, the members list (s.23) A nonprofit or member can apply to the government to deny access to information about a member if they believe it may harm that member (s.25)

Members may have access to  the letters patent, bylaws, minutes of meetings of members (s.305) and, if the appropriate affidavit is submitted, the members list (s.307)

Minutes

Must keep minutes of all:

  • member’s meetings
  • committee of members meetings
  • Board meetings
  • Board committee meetings

(s.21(1)(b) and s.21(3))

Must keep minutes of all :

  • Members’ meetings
  • Board meetings 
  • executive committee meetings

(s.299(1))

Penalties for misusing access to records

Persons that misuse access to records can be fined  up to $25,000, sent to jail for up to 6 months, or both (s.262(3))

Selling a list of members   or using it for any reason not connected to the nonprofit, such as to send ads, can lead to a fine of up to $1,000 (s.306(2), 308)

Debt obligation register

Must keep one. Members may access it by making an official request (s.22(2))

There is no specific rule to keep one

Rules that apply to non-soliciting corporations: (CNCA s.179(b), s.188(1), s.189(1)-(2), s.190 Reg 80(1))

 

CNCA

OCA

Less than $100,000 in annual revenue

You are required to obtain a review engagement. But if every member votes against doing one at a members’ meeting, you only have to get a compilation

You are required to obtain an audit, but you don’t have to do one if all members consent, or 80% of members vote against doing one at a members’ meeting (s. 130.1)

$100,000-$999,999 in annual revenue

You are required to obtain a review engagement. But if every member votes against doing one at a members’ meeting, you only have to  get a compilation

You are required to obtain an audit

More than $1,000,000 in annual revenue

You are required to obtain an audit

You are required to obtain an audit

Rules that apply to soliciting Corporation: (CNCA s.179(a), s.188(1), s.189(1)-(2), s.190 Reg 80(1))

 

CNCA

OCA

0-$50,000 in annual revenue

You are required to obtain a review engagement. But if every member votes against doing one at a members’ meeting, you only have to get a compilation

You are required to obtain an audit, but don’t have to do one if all members consent or 80% of members vote against doing one at a members’ meeting

$50,001-$100,000 in annual revenue

You are required to obtain an audit but you can do a review engagement instead if 2/3rds of members vote in favour of it at a members’ meeting

You are required to obtain an audit, but don’t have to do one if 80% of members vote against it at a members’ meeting

$100,001-250,000 in annual revenue

You are required to obtain an audit but you can do a review engagement instead if  2/3rds of members vote in favour of it at a members’ meeting

You are required to obtain an audit

Over $250,000 in annual revenue

You are required to obtain an audit

You are required to obtain an audit

Incorporating federally is usually a lot faster and easier, but a little more expensive than incorporating provincially. Incorporating under the OCA takes about 6-8 weeks or longer.

 

CNCA

OCA

Minimum number of incorporators

1 (s.6(1))

3 (s.4(1))

Qualifications of incorporators

At least 18 years old, able to manage property, and not bankrupt (s.6(2))

At least 18 years old (s.4(1))

Cost

$200-250

$155-$255

Method

By  email, fax, phone, or online

By mail or in-person

Turn-around time

1-2 days

6-8 weeks or  7 business days if expedited

Both the OCA and CNCA set out penalties that directors may face if they violate the legislation. In practice, prosecutions do not happen. However, we have set out the penalties below so that members know what options they have when faced with a board that is not respecting the rules.  

 

CNCA

OCA

Court investigation

A member, the government, or anyone who can prove the nonprofit owes money to them,  can ask the court to investigate your nonprofit (s.242(1))

A minimum of 10% of your members are needed to ask the court to investigate your nonprofit (s.310(1))

Reasons to ask the court to investigate

Fraud or dishonesty, oppression or unfairness (s.242(2))

For any “good reason” (s.310(2))

Who can sue your board on behalf of your organization

Current and former directors, anyone who can prove the nonprofit owes money to them, or anyone the court allows, can take your Board to court on behalf of the nonprofit if they believe the board has violated its duty or has oppressed a member (s.250-253)

The OCA does not allow these kinds of lawsuits

Oppressed member

A member who believes they’ve been oppressed or their interests have been unfairly prejudiced can sue your nonprofit (s.250-253)

The Act doesn’t say anything about this

Appeal government decisions

You can appeal if the government refuses your request to change your articles, name, or headquarters (s.258)

You can appeal only if the government decides to close down your nonprofit and you think they made a mistake about the law. You cannot argue that you think they are mistaken about the facts.  (s.317)

Forced to close down nonprofit

The court has the power to close down a nonprofit for:

  • doing things that go against what’s in their articles
  • engaging in oppressive conduct
  • not holding an annual general meeting
  • not giving access to their records
  • not giving financial statements that include all the corporations the nonprofit controls, or financial statements to members

(s.223-224)

The court has the power to close down a nonprofit if it’s bankrupt or for any reason the court believes it should be closed down (s.243, s.312)

 

CNCA

OCA

Merge with another nonprofit

If a nonprofit has the same members as another nonprofit, the process to merge is simpler. Members can be the same because, for example, they may have the same parent corporation or one is the parent of the other (s.207)

Section 113 allows for and sets out rules amalgamation, which is very similar

Distribute property on closing down

The bylaws of soliciting corporations and charities must say that if they close down, their remaining resources will be given to one or more qualified donees  (s.235(2))

Unless their letters patent or bylaws say something else, a nonprofit that’s closing down must distribute its remaining resources to its members (s.132(2) and (5)) Charities are required to distribute their remaining resources to other charitable organizations

Minimum vote to voluntarily close down

You need 2/3rds of members from each member class –  voting and non-voting – to vote in favour of closing down your nonprofit (s.221)

You need 50%+1 of voting members at a members’ meeting to vote in favour of closing down, unless your bylaws has a higher threshold (s.230)

Reviewed: 2020-09-15