Ontario’s new Not For Profit Corporations Act received Royal Assent this past October and the changes to the legislation are significant for many of the estimated 8 million Ontarians who work with, volunteer for, or represent incorporated volunteer associations. There are similar efforts going on to change the federal legislation, but this article with deal primarily with the provincial law.
The new Act replaces section II of the old Corporations Act, which to be clear, deals with not for profit corporations. Business corporations still fall under the jurisdiction of the Business Corporations Acts of either Ontario or Canada.
The Act’s most notable feature is that it clarifies and codifies the duties, responsibilities and rights of those who serve as directors of the corporation. This should help to provide some certainty for directors, as the case law on some of these issues was complicated and muddled – a lot of it involving awkward adoptions of case law meant only to apply to business corporations.
The Act contains helpful language on the objective standard of care for directors, requiring that they “act honestly and in good faith with a view to the best interests of the corporation; and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.” And the Act notes that the statutory duties cannot be contracted out of – no “backroom bylaws” to subvert the interests of the membership.
The conflict of interest rules are also significant. While many not for profits incorporated under the Corporations Act followed best practices and common law guidance and had suitable conflict of interest policies in their bylaws, some did not. The new Act clarifies the definition of a conflict, the duties of a director to declare the conflict and even some circumstances where members will be required to approve acts undertaken in conflict.
Taken as a whole, the legislation greatly strengthens the democratic rights of members of not for profit corporations, and I don’t think in doing so it places any extraordinary burdens on those who volunteer their time and expertise to act as directors. The Act provides guidance and clarity and a few remedies that were difficult to obtain before.
The Act is expected to come in to effect some time late next year or in early 2012, and provides a transition period for organizations incorporated under the Corporations Act. As always, we strongly recommend that if you act as a director for a not for profit, you consult your legal counsel about how the changes will affect your organization.
Scott R. Young