Ontario’s Not-for-Profit Business Corporations Act (ONCA), which received royal assent back in 2010, is finally set to come into force on October 19th. Businesses that will be governed by this new legislation will have a three-year grace period, until October 19, 2024, to bring themselves into compliance with the changes under the Act. Below, we will provide an overview of which organizations will fall within the scope of the ONCA, and what changes they should be prepared to consider in order to remain compliant. In addition, we will briefly discuss the new Ontario Business Registry, which is also set to launch on October 19th.
To Which Organizations Does the New ONCA Apply?
The new ONCA will apply to non-profit organizations incorporated under provincial legislation. Therefore, any non-profit incorporated under the federal Not-for-Profit Corporations Act, even if they operate within Ontario, will not be subject to the incoming changes.
Specifically, the ONCA applies to charitable and non-charitable businesses that meet the following requirements, and were incorporated under provincial law:
- The organization is dedicated to purposes other than earning profit
- The organization does not issue ownership shares
- The organization does not distribute profits to officers, members, or directors
- Any profits earned by the organization are used to facilitate the organization’s not-for-profit purposes
What are the Key Changes Affected Organizations Can Expect?
According to a guide to the ONCA published by the Ontario government, some key changes will impact the incorporation process itself, with aims to make it simpler, as well as a simplification of the process for reviewing financial records. In addition, the ONCA will impose a new duty of care for directors, as well as a limitation on personal liability in certain circumstances. Some of the key changes are listed below, and a full list can be found here.
- make the incorporation process for new not-for-profit corporations more efficient
- make a new distinction between public benefit corporations and other not-for-profit corporations
- A ‘public benefit corporation’ is defined under the ONCA as a charitable corporation or a non-charitable corporation that receives more than $10,000 in a financial year in the form of donations, gifts, or grants.
- clarify that not-for-profit corporations can engage in commercial activities if the activities support the corporation’s not-for-profit purposes
- a not-for-profit corporation may be subject to restrictions on its activities imposed by other legislation such as the Income Tax Act
- allow for a simpler process for reviewing the corporation’s financial records
- called a “review engagement,” the process can take the place of an audit in some circumstances and, in some situations, neither an audit nor review engagement will be required
- provide clearer rules for governing the corporation and increasing accountability
- ONCA will provide a statutory duty of care for directors, which will require them to act honestly and in good faith with a view to the best interests of the corporation, and to exercise reasonable care, diligence and skill
- set out a due diligence and good faith reliance defence for directors
- a director will not be legally liable in certain circumstances if they acted with the care, diligence and skill a reasonably careful person would have acted in similar circumstances
- list specific requirements for directors and officers to report a conflict of interest in certain circumstances
To ensure compliance with the new rules, non-profit organizations should prepare by examining existing documents for potential necessary updates. For example, they should review their Articles of Incorporation and By-Laws to determine whether updated language will be needed.
Ontario Business Registry Going Live October 19th
In addition to the new legislation, the province is also launching the new Ontario Business Registry on the same day. The Registry is designed to allow businesses to complete over 90 transactions online, with 24 hr/day, 7 days/week access. The system will be used by both for-profit corporations, as well as not-for-profit organizations, as well as their intermediaries such as lawyers or accountants.
The new system will allow businesses to incorporate or dissolve instantly, rather than waiting four to six weeks for a filing to be processed. In addition, annual returns, which were previously filed with the Canada Revenue Agency, will move to the Registry, allowing organizations to manage all of their filings in the same place.
Contact Milosevic & Associates in Toronto for Complex Corporate Commercial Matters and Litigation
The above changes are aimed at making it easier for non-profit organizations to do business in Ontario, however, directors and officers need to be aware of their new obligations under the ONCA to avoid liability issues.
The Toronto lawyers at Milosevic & Associates are skilled litigators who regularly guide clients through complex commercial matters, including shareholder disputes. Our team has extensive experience and expertise advocating for our clients’ rights. Call us at 416-916-1387 or contact us online to schedule a consultation.