This fall, the Ontario charitable sector should know whether the province’s Bill 65 — the Not-for-Profit Corporations Act, 2010 — will pass third reading in the legislature and become law.

Currently being evaluated by the province’s Standing Committee on Social Policy, the act passed first reading in the Ontario legislature on May 12 and then again in second reading on June 2. The committee has been ordered to report back to the house on Sept. 13 where, according to Stephen Puddister, issues & media relations analyst with the ministry of consumer services, third reading and Royal Assent would follow, “but timing has not yet been determined.” Proclamation of the new Act, if passed, is anticipated in 2012. [Note: Interested readers can follow the progress of Bill 65 at www.ontla.on.ca].

So what is this new legislation?

An Act for nonprofits

In a May 12 statement, Ontario introduced the proposed legislation change by reminding citizens that its nonprofit sector “employs about 16 per cent of all employed Ontarians and generates nearly $50 billion in annual revenues.” It added that Bill 65, if passed, would provide Ontario’s 46,000 nonprofit corporations with a “modern, legal framework to: enhance corporate governance and accountability; simplify the incorporation process; give more rights to members; and better protect directors and officers from personal liability.” Puddister says the legislation was introduced in order for the province to modernize its laws for the sector.

“[The Act] would meet the government’s commitment to business law modernization. The current Act governing not-for-profit corporations incorporated in Ontario, the Corporations Act, was enacted in 1907 and has not been substantially revised since 1953. The Corporations Act does not meet the requirements of Ontario’s not-for-profit sector. It is significantly out-of-date, difficult to use and many of its provisions are no longer applicable or relevant,” he says.

According to Wayne Gray, charities lawyer and partner at Toronto law firm MacMillan LLP, the sector is in for a terrific legal revitalization.

“In my view, Bill 65 represents an important milestone for Ontario’s nonprofit sector. The new act will directly benefit 46,000 Ontario organizations operating in the sector and indirectly benefit the many more that depend on the services these organizations provide through their volunteers, donors, employees and members,” he says.

Additionally, the act will impact the sector in a multitude of specific legal, advantageous ways. Gray outlined some of these for CharityVillage®. They include:

• ease and quickness of incorporation;
• ease of making fundamental changes such as amendments to charter, amalgamations and continuances;
• provision for default by-laws;
• greater director accountability to members through power to remove at any time;
• a modern governance regime for directors and officers, including due diligence defense, good faith reliance defense, indemnity and directors and officers (D&O) liability insurance;
• codification of modern conflict of interest rules;
• use of modern technologies such as conference calls and video-conferencing to hold meetings of members and directors;
• clear authorization to use written resolutions in lieu of meeting of members and directors;
• provision of audit/review engagement exemptions that reduce costs for smaller organizations;
• financial disclosure rules that more closely link financial performance to election of board; sophisticated differentiation between public benefit corporations and mutual benefit corporations; and,
• overall, a clear, modern set of rules that will be easier to find and use.

 

As for social enterprising…

Asked about how the new bill would play out for organizations looking into social enterprise endeavours to supplement their revenues, Puddister acknowledges there are some potential impacts there.

“Nonprofit social enterprises currently operate in Ontario under the Corporations Act. The proposed new act would continue to enable nonprofit social enterprises to operate in Ontario,” he says. “The new act clarifies that nonprofit social enterprises would be permitted to engage in commercial activities that support their not-for-profit purposes.”

When she first introduced the legislation, Sophia Aggelonitis, Minister of Consumer Services, said the government was “particularly pleased that it allows not-for-profit corporations to engage in commercial activities where the revenues earned are reinvested in the corporation’s not-for-profit purposes. Bill 65 promises to make it easier for not-for-profit corporations to successfully operate and do business in today’s economy.”

Tonya Surman, executive director of the Centre for Social Innovation in Toronto, praised the bill, writing on her organization’s website on May 13 that the legislation finally recognizes “that nonprofits can engage in commercial activities where revenues are reinvested in our social purpose.” She also called it “a huge step and reinforces the sector’s efforts to build a stronger and more resilient nonprofit sector. It will be fun to see how the details pan out, but I do believe that it is a call for celebration.”

Despite the celebratory mood, Surman also sounds a slight note of caution for her sector peers. She adds:

“The government is open to partnership and the sector is feeling more empowered than ever before. You can probably tell that I am hopeful about the process of strengthening this partnership. This said, it will be vital to be clear that the sector is an able-bodied, intelligent and professional sector that expects to be treated like the full and equal partner that we are becoming. Like all good partnerships, it will be essential to build respect and trust in order to ensure that this Bill 65 is only just the beginning of leveraging the true potential of the nonprofit sector to help fix our future.”

The future of Bill 65

It’s important to note that Bill 65 is still a ways from actually being an enshrined piece of legislation. But when and if it is passed, affected sector organizations should know that they will have some time to acclimatize and absorb the new law into their own operations.

“It is anticipated that the bill will likely not be proclaimed into force until 2012. Proclamation of the new act is dependent on developing the required regulations and significant computer modifications to accommodate new forms and procedures under the new act,” Puddister notes. He adds that the government also plans to help users understand their rights and obligations under the proposed new Act.

“The government plans to develop and publish information guides before proclamation of the Act. In addition, the government will be supporting nonprofit corporations by preparing default by-laws to assist these corporations in reviewing their current by-laws in order to make necessary changes,” he says. “If passed, the Not-for-Profit Corporations Act would provide not-for-profit corporations three years from the time the new act comes into force to amend their letters patent, by-laws and special resolutions to conform with the requirements of the new Act. At the end of the three years, such documents will be deemed to be amended to conform with the requirements of the new act.”

Right now, it’s still a waiting game and not all of the details have been hammered out. Still, from all indications in the current draft of the legislation, Ontario nonprofits stand to gain immense legal and operational leverage in the not-too-distant future.

Andy Levy-Ajzenkopf is president of WordLaunch professional writing services in Toronto. He can be reached at andy@wordlaunch.com.

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