This page tells you what Ontario’s Not-for-Profit Corporations Act (ONCA) says about directors. It explains, for example, a director’s roles and responsibilities, who can be a director, and how long they stay on the board.
If you incorporated before ONCA came into effect on October 19, 2021, your bylaws or articles may not comply with the rules explained below. You have until October 18, 2024, to review, update, and file your governing documents with the Ontario government. Until then, your articles and bylaws continue to be valid. This is true as long they were valid before ONCA took effect.
What does the director of a nonprofit do?
ONCA says directors are expected to “manage or supervise the management of the activities and affairs of the corporation” (s.21). This means that directors are responsible for what the nonprofit does.
- act honestly and sincerely, and do what’s best for the nonprofit
- be as careful and thoughtful as a reasonably careful person would be in a similar situation
Directors also have specific duties, for example, they must call members’ meetings and keep records.
Directors must go to board meetings, be familiar with the issues discussed and get advice from experts when they need. They must be transparent and inform the nonprofit of any conflicts of interests.
One of your directors must agree to be chair of the board.
There are some duties that only a director must do. They cannot ask anyone else to do them. For example, only the board can:
- vote to change bylaws or accept new bylaws
- fill vacancies on the board
- hire an auditor
- take on debt for the nonprofit
- approve financial statements
- decide on member dues and fees
Many nonprofits use the terms director and officer as though there’s no difference between them. But, the roles of directors and officers are different.
Directors make decisions for the nonprofit by being part of the board. But officers are only in charge of specific tasks and duties involved in running the nonprofit based on their position.
Usually, directors can also hold officer positions in the nonprofit.
Here are some other differences between directors and officers:
Who selects them?
|Members elect directors
The board appoints officers.
What is their role in the nonprofit?
Sit on the board to oversee the nonprofit.
Carry out specific jobs.
Can they make decisions?
Collectively through board resolutions.
Individually for what they’re responsible for.
Can they vote on board decisions?
No, unless they’re also directors.
No, but the websites listed below offer a lot of helpful information on governance and director training:
Charity Village – Boards That Work
Pillar Nonprofit Network – Online Board Governance Training
Capacity Canada – Modern Board
Law firms that work in nonprofit law may also offer director training. Associations that focus on specific sectors or areas, may also offer governance training for nonprofits working in that sector. For example, Health Charities Canada may offer training for health charities.
Who can be a director?
A director must be over 18 years and must be able to manage property under Canadian law. They cannot be bankrupt.
ONCA says a director does not have to live in Ontario. They can live anywhere, even out of Canada.
|Registered charities!When the majority of board members are related to each other, the nonprofit becomes a private foundation.
Yes, as long as this is allowed in your articles.
If your articles allow for a range of directors, the number of founding members on your board is your default number of directors.
If you want to change the number of directors on your board within the range set out in your articles, your members must pass a special resolution. The resolution must either:
change the number of seats on your board within the range
give the board the power to set the number of seats within the range
Yes, employees can be directors of a nonprofit as long as the nonprofit is not a public benefit corporation or a charity.
For public benefit corporations, only one-third of the directors can be employees of the nonprofit or of any of its affiliates (Section 23).
An organization is considered an affiliate of a nonprofit if the nonprofit controls it, or they are both controlled by the same organization or person (Section 3). So an employee joining the Board of a public benefit corporation may wish to know whether this limit has already been reached.
Employees who are directors must follow the conflict-of-interest rules that apply directors. This means they must immediately let the board know when they have a conflict. And they must not be at any meeting when the conflict is being discussed. For example, if the board is discussing whether or not to renew their employment contract with the nonprofit.
|For registered charities there are very limited situations when an employee is allowed to be a director. This guide has more information on what those situations are and what process the charity must follow.
Length of director terms
There can be open places on the board of directors. This can happen when:
- A director resigns or is unable to serve their term because of illness or death
- Not enough directors were elected at the last annual meeting.
Vacancies are filled based on how they happen.
1. A director resigns or is unable to serve their term because of illness or death.
In this situation, the remaining board members can fill this position with a temporary director. The temporary director takes on all the responsibilities of the former director including voting.
A temporary director serves the remainder of the term of the director they replaced.
The board can fill these kinds of board vacancies as many times as they need to, unless your bylaws say otherwise.
2. Not enough directors were elected at the last annual meeting.
In this situation, the board only has the power to elect up to one-third of the number of directors that were elected at the last annual meeting.
For example, if at your annual meeting there are 8 board seats open for election, but only 6 directors are elected, the board can fill the other 2 seats. If there are 9 board seats open for election and only 6 directors are elected, the board can still only fill 2 of the vacancies.
If the board cannot fill the remainder of the seats, it functions with vacancies until the next election.
No. As long as a board has a quorum, the board can continue to function as usual.
If the number of board members drops below quorum, the remaining board members must call a members’ meeting as soon as possible to fill the vacancies.
Director liability and removal
ONCA allows nonprofits to buy insurance to secure directors and officers against damages they may do to the nonprofit.
Directors or officers can be indemnified by the nonprofit if they act honestly and in good faith in the best interests of the nonprofit and believe that their actions are lawful.
Your bylaws may say what your nonprofit’s rules on indemnification and insurance are, but they do not have to.
|Before a registered charity buys insurance or indemnifies a director there is a list of factors (Charities Accounting Act section 2) they must consider. If Charities want to buy liability insurance for their directors or officers, they must follow the Charities Accounting Act or have a court order.
Usually, directors are not held personally responsible for every financial problem. But, they can be held personally responsible for some things.
For example, they can be personally responsible if the nonprofit does not send Employment Insurance and Canada Pension Plan contributions to the Canada Revenue Agency. Or if they close down a nonprofit without paying employees up to 6 months of salary and a year of vacation pay.
A director can be responsible for these payments even if they did not directly cause the nonprofit’s financial problem.
There are 3 direct and indirect ways a director may be removed from office:
1. At a members’ meeting the members’ pass a resolution to remove the director with 50%+1 of the votes cast at that meeting or all your members pass a unanimous written resolution outside of a members’ meeting.
2. The director no longer qualifies to be a board member. For example, your bylaws may say a director is required to be a member. If the director is removed as a member, then they automatically stop being a director.
3. The board member resigns or is deemed or considered to have resigned. For example, your articles or bylaws may say that a director is considered to have resigned if they miss a certain number of meetings per year or acted in a certain way.
The board cannot vote to remove a director. Only members have the right to remove a director.
Your bylaws cannot say any other number. For example, they cannot say 60% of members or 40% of members.
Payment for Director Services
You can pay directors, officers, and members a reasonable amount for the work they do in another role.You can also pay them for the expenses they have when doing that work.
But if your bylaws say you cannot pay them, then you cannot (section 47).
|Registered charities should be aware of charity law and CRA rules on paying directors. In some situations, a charity can get permission from the Public Guardian and Trustee to pay their directors. But a charity cannot pay them for the work they do as directors. For more information, see this guide.