Recent Changes to the Ontario Not-for-Profit Corporations Act
Introduction:
The Ontario Not-for-Profit Corporations Act (ONCA) has recently undergone significant changes, aiming to enhance governance practices and improve the efficiency of non-profit organizations. Not-for-Profit Corporations operating in Ontario are required to comply with these changes by October 2024. This policy analysis examines the key features of the new act and their potential implications for the non-profit sector in Ontario.
Efficient Incorporation Process: The revised act introduces measures to streamline the incorporation process for new not-for-profit corporations. By reducing bureaucratic hurdles and simplifying procedures, this change seeks to promote the establishment of non-profit organizations in a more efficient manner.
Distinction for Public Benefit Corporations: A notable addition to the ONCA is the introduction of a distinction between public benefit corporations and other not-for-profit corporations. This differentiation allows for improved categorization and potentially facilitates the identification and understanding of organizations operating in the public interest.
Expanded Voting Methods: Under the new act, not-for-profit corporations are now granted the flexibility to provide additional voting methods in their by-laws. This includes options such as voting by mail, telephone, or electronic means, supplementing or substituting the traditional proxy voting system. These expanded voting methods aim to increase convenience and accessibility for members, potentially leading to higher engagement in decision-making processes.
Proxy Holder Appointment: The ONCA permits members of a corporation to appoint proxy holders, subject to the corporation's articles or by-laws. This provision grants individuals the ability to delegate their voting rights to trusted representatives, enhancing participation and ensuring that their interests are represented during important decision-making events.
Commercial Activities: A significant clarification in the new act is the recognition that not-for-profit corporations can engage in commercial activities, provided they align with the organization's not-for-profit purposes. This change acknowledges the evolving landscape of non-profit operations and opens doors for innovative revenue-generating initiatives that support the overall mission and sustainability of these organizations.
Activity Restrictions: While not-for-profit corporations have newfound flexibility in engaging in commercial activities, it is important to note that the ONCA highlights potential restrictions imposed by other legislation, such as the Income Tax Act. Non-profit organizations must navigate these additional requirements and ensure compliance while pursuing their objectives.
Simplified Financial Record Review: The introduction of a "review engagement" process offers a simplified alternative to traditional audits in certain circumstances. This streamlined approach can provide cost savings for organizations and reduce the administrative burden associated with financial record reviews, while still ensuring adequate scrutiny of financial practices.
Membership Classifications and Governance: The ONCA mandates that corporations with multiple membership classes or groups outline these distinctions in their articles, rather than the by-laws. Additionally, the act establishes clearer rules for governing corporations, increasing accountability, and introducing a statutory duty of care for directors. These measures aim to enhance transparency, professionalism, and the responsible management of non-profit organizations.
Conflict of Interest Reporting: To promote integrity and ethical conduct, the ONCA lists specific requirements for directors and officers to report conflicts of interest in certain circumstances. This provision ensures that potential conflicts are appropriately disclosed and addressed, mitigating potential risks and protecting the interests of the organization and its stakeholders.
Member Rights and Access: The new act strengthens the rights of members within not-for-profit corporations. It provides members with actions they can take if they believe directors are not acting in the best interests of the organization. Additionally, members now have increased access to financial records, fostering transparency and enabling informed decision-making.
Streamlined Charitable Corporation Incorporation: The ONCA simplifies the process of incorporating as a charitable corporation by eliminating the requirement for approval from the Office of the Public Guardian and Trustee (OPGT). This change reduces bureaucratic hurdles and allows for more streamlined and efficient incorporation procedures, facilitating the establishment of charitable organizations.
Alignment with National Standards: The adoption of the ONCA aligns Ontario with other Canadian jurisdictions that have modernized their not-for-profit corporations' laws. Harmonization with federal legislation, such as the Canada Not-for-profit Corporations Act, ensures consistency and coherence across the country, potentially facilitating cross-jurisdictional operations for non-profit organizations.
Conclusion:
The recent changes to the Ontario Not-for-Profit Corporations Act (ONCA) introduce several significant features that aim to improve the governance, efficiency, and flexibility of non-profit organizations. While these changes offer opportunities for innovation and enhanced member engagement, organizations must navigate the accompanying responsibilities and compliance requirements. By staying informed and adapting to the new regulatory landscape, non-profit corporations can leverage these changes to further their missions and better serve their communities. Johnstone Karl Strategy has helped a number of non-profits in achieving compliance with these changes. If your Board of Directors or Governance Committee require assitacne Johnstone Karl Strategy can help!
