PREPARING FOR THE NEW BC SOCIETIES ACT April 23, 2016 BCWF Annual Conference Nanaimo, BC Luke A. Johnson De Jager Volkenant & Company
De Jager Volkenant & Company Charity & Non-Profit Organization Law Wills and Estates Corporate and Commercial Law Real Estate Development Employment and Human Rights Law Litigation and Mediation School Law #5 15243 91 Avenue Surrey, British Columbia, V3R 8P8 Tel: 604-953-1500 Fax: 604-953-1501 ljohnson@dvclawyers.com
Overview Incorporation Constitutions Bylaws New Societies Act What is the best way for a society to tackle a bylaw review and revision process?
Incorporated Entities A non-profit organization can be: Unincorporated Established as a trust Incorporated provincially (under the Society Act in BC) Incorporated federally (under the Canada Not-for-profit Corporation Act CNCA in Canada) Many non-profit organizations are also registered charities (under the Income Tax Act) Most BCWF clubs are incorporated societies
Some BCWF Clubs Abbotsford Fish and Game Club Alberni Fish & Game Club Armstrong and District Fish and Game Association Chase & District Fish & Game Club Chilliwack Fish and Game Protective Association Courtenay & District Fish & Game Protective Association Cowichan Fish & Game Association Croatian Fish & Game Club of B.C. Enderby & District Fish and Game Protective Association Finnish Canadian Fish and Game Club Kamloops and District Fish and Game Association Kelowna & District Fish & Game Club Mackenzie Fish & Game Association Nanaimo & District Fish and Game Protective Association Nicola Valley Fish and Game Club
North Shore Fish and Game Club North Thompson Fish and Game Club Society Oceola Fish and Game Club Pacific Rim Fish & Game Association Parksville-Qualicum Fish and Game Association Pennask Lake Fishing and Game Club Princeton Fish & Game Association Salmon Arm Fish and Game Club Sapperton Fish and Game Club Sayward Fish & Game Association Semiahmoo Fish and Game Club The Burnaby Fish and Game Club The Otter Valley Fish and Game Club Valley Fish and Game Club Vernon Fish & Game Club Victoria Fish and Game Protective Association Chetwynd and District Rod and Gun Club 111 Mile Rod & Gun Club Atlin Rod and Gun Club Bridge River Rod and Gun Club Bulkley Valley Rod and Gun Club Canadian Hellenic Rod & Gun Club
Central N. Thompson Rod & Gun Club Cortes Is. Rod and Gun Club (1991) Delta Ladner Rod & Gun Club Elkford Rod and Gun Club Endako Rod & Gun Club Fernie Rod and Gun Club Forest Grove & District Rod & Gun Club Fort Nelson Rod & Gun Club Fulton River Rod & Gun Club Gabriola Rod, Gun & Conservation Club Galiano Rod & Gun Club Gold River Rod & Gun Club Hemlock Valley Rod and Gun Club Association Hope Rod and Gun Club Hudson s Hope Rod & Gun Club Ital Canadian Rod & Gun Club Kitimat Rod & Gun Association Lake Windermere District Rod & Gun Club Langley Rod and Gun Club Maple Ridge Rod and Gun Club Masset Rod & Gun Club Mission and District Rod and Gun Club
Nakusp Rod and Gun Club Nimpkish Valley Rod & Gun Club North Peace Rod & Gun Club North Saanich Rod and Gun Club Port Clements Rod & Gun Club (1991) Portuguese Canadian Rod & Gun Club Prince George Rod and Gun Club Prince Rupert Rod and Gun Club Quesnel Rod and Gun Club Revelstoke Rod & Gun Club Richmond Rod and Gun Club Squamish Valley Rod and Gun Club Tatla Lake Rod and Gun Club Terrace Rod and Gun Club Agassiz-Harrison Rod and Gun Club Bella Coola Rod and Gun Club Chemainus Rod and Gun Club Creston Valley Rod and Gun Club Golden District Rod and Gun Club Lillooet & District Rod and Gun Club Nelson District Rod & Gun Club Powell River Rod & Gun Club Ridgedale Rod & Gun Club Saltspring Island Rod and Gun Club Sunshine Coast Rod and Gun Club Tweedsmuir Park Rod & Gun Club
Incorporation Organizations are commonly incorporated to: limit the legal liability of members limit the legal liability of directors/trustees Aligning internal polity and practices with the legislated corporate requirements can be challenging
Incorporated Societies: Legal Nature Incorporated societies are legal persons and can therefore enter into contracts, hold title to property, sue and be sued etc. The legal relationship between an incorporated society and its members is contractual in nature Charitable organizations also have a trust nature. Because all the property of a registered charity must be used exclusively for charitable purposes, society property is impressed with a charitable trust under the common law.
Constating Documents Incorporated societies are created by preparing constating documents and filing them with Provincial or Federal authorities Constating documents are the foundational documents that establish an incorporated society For societies constating documents are at a minimum the Constitution and Bylaws
What is a Constitution? The constitution sets out the identity, the who, where and what of the corporation A constitution of a non-profit corporation must contain the Name of the corporation a Statement of the Objects or Purposes of the corporation A constitution of a charitable corporation must contain: exclusively non-profit/charitable language
What is a Constitution? For a current BC society: clauses other than name and purposes must include a statement of whether or not the clauses may be altered. Unalterable clauses cannot be changed (yet) A constitution may also address other important matters: Statement of Faith or other Foundational Statements or Core Beliefs Core Values and Principles Wind up provisions (what will happen with the assets of the society on windup)
Objects/Purposes The objects/purposes of a non profit corporation define the fundamental objectives and the arena(s) of activity of the organization The objects or purposes of a charitable non profit organization must be the relief of poverty the advancement of education the advancement of religion; and/or any other purpose beneficial to the community that is charitable at law
Acting Outside of Objects CRA will register a society as a charity where the proposed objects or purposes and activities of the society are charitable at law If a registered charity engages in activities that fall outside of its objects or purposes, it may risk CRA sanction including loss of its charitable status Such action may also constitute a breach of trust giving rise to potential claims by Members or Donors List all of your current society activities and check the list against current purpose language
What are Bylaws? The bylaws set out the how of the society. Bylaws are the rules by which the society operates Society bylaws must contain rules for: admission and termination of members member rights and obligations appointment and removal of directors and officers director / officer powers, responsibilities and remuneration procedures for calling member meetings voting rights at member meetings exercise of borrowing powers preparation and custody of meeting minutes
What are Bylaws? Bylaws also address other important matters such as: Providing notice of meetings and holding meetings Quorum provisions (consider fixed number) Offices and roles of Officers Executive, Standing and other Committees Senior Management Positions and functions Indemnification of Directors Dispute resolution Access to and restrictions on inspection of documents Classes of membership
Members and Directors The members of a non profit society are analogous to shareholders of a for-profit company. They are the stakeholders in the organization however they do not own anything The directors are the mind of the body corporate and practically the eyes, ears, mouth, hands and feet as well
Closely and Widely Held Societies A closely held non profit organization is one where the members and directors are the same individuals As both the members and the directors they elect their own successors Closely held organizations are generally used where it is desirable to have the control of the organization maintained with a small number of people who understand and will protect foundational values and principles
Closely and Widely Held Societies A widely held non profit organization is one where there is a broader community consisting of many members The directors of a widely held organization are generally elected by and/or from the wider membership. Widely held organizations are generally used where broader control of the organization is desired
Closely and Widely Held Societies Hybrid corporations that effectively fall somewhere between widely and closely held can be created with careful drafting (some examples): Limiting the total number of members Setting qualifications for membership Setting qualifications for directors Specifying terms and maximum terms for members and directors Eliminating floor nominations Controlling the nomination process
Parallel Societies A parallel non profit organization is one that is connected in some way to another non profit organization where there is some degree of influence or control by one organization over the other There is typically overlap at the membership or board level in parallel organizations The degree of control and connectedness must be balanced with liability protection objectives
New Societies Act 1. Status of New Act and Effective Date 2. Themes of New Act 3. Significant Provisions in New Act 4. Transition Process under New Act 5. What to do now?
Background to New Act 1977 Current Society Act introduced 2004 Significant amendments made 2008 BC Law Institute report calling for reform 2011 Provincial discussion paper issued 2014 New draft Act released in August 2015 (Mar) Introduction in Legislature in March 2015 (May) Approval by Legislature in May 2015 (Nov) Regulations released 2016 (Nov) Act in Force - Start of transition period
New Societies Act - Themes Modernized Corporate Legislation In line with BC Business Corporations Act Addresses problematic issues under current Society Act Transparency and openness Flexibility More Accountability To public To society members
Significant Provisions - General Provides for incorporation by one person Requires a consolidated, current set of Bylaws, will be available online Provides for amendment of currently unalterable constitutional provisions Allows for online filing of annual reports Eliminates the requirement for member special resolutions for borrowing Clarifies record-keeping requirements
Significant Provisions - Directors Preserves option for remuneration for directors, subject to certain requirements Provides for appointment of ex officio directors Provides for the removal of directors via a mechanism to be set out in the Bylaws Clarifies director qualifications Strengthens indemnification for directors Limits director liabilities via the good faith reliance defense Permits employees to serve as directors
Significant Provisions - Members Permits membership classes Eliminates the current cap on non-voting members Removes the requirement for registrar approval of out-ofprovince general meetings for members Permits participation in meetings via electronic means Carries forward the permissive audit regime
Significant Provisions - General Constitutions will contain only Name and Purposes all other Constitution provisions must be moved to Bylaws The new statutory default special resolution threshold is 2/3rds rather than 3/4ths of members
Unalterable Provisions Some societies want to lock in foundational principles in perpetuity The new special resolution threshold of 2/3rds makes it too easy to change foundational principles Some societies are required by external parent or funding organizations to lock in the transfer of assets on a dissolution or wind up Ministry helped resolve this concern by amending the draft legislation to allow societies to set their own threshold for when unalterable provisions can be altered, up to and including unanimity
Section 55 Deemed Directors Applies to a person who is not a director but who performs functions of a director Effectively a puppeteer provision intended to make persons who are essentially directors subject to the director obligations of the Act Current language is too broad and arguably may include persons acting under the direction of other society managers and external professional advisors
Senior Manager Requirements Definition of Senior Manager is quite broad and includes persons overseeing the activities of society as a whole or of a principal unit of the society Includes persons who perform a policy making function with the capacity to influence the direction of the society These persons are subject to director requirements, director liabilities and fiduciary obligations These persons must be appointed by directors Employees and volunteers are not traditionally seen as fiduciaries their duties are governed by contract
Section 36 Salary Disclosure Under the New Act, members of the public will have a right to inspect financial statements Financial statements must disclose the top 10 salaries (over a base amount to be set by regulation) Current base under Regulations is $75,000 May apply to more than employees/independent contractors Identity of recipient and privacy protected by referring to employees position and not their name
Significant Provisions Section 99 Public Interest Remedy New provision that would have allowed members of the public to apply to Court to complain that a society is conducting its activities or internal affairs unlawfully or carrying on activities that are detrimental to the public interest Trumpeted as unique in corporate law Implied that societies have a duty to act in the public interest Deleted under strong non-profit sector resistance
Significant Provisions - Remedies Oppression Remedy (Section 102) This legal remedy arises out of the for-profit corporation context to protect minority shareholders Members of a society do not have a financial interest in a society so what will constitute oppression in the not-forprofit context?
Significant Provisions - Remedies Defending nuisance claims and even dealing in the first instance with claims that fail to become court cases can be time-consuming and expensive Derivative Actions (Section 103) Compliance or Restraining Orders (Section 104) CAREFULLY CONSIDER YOUR MEMBERSHIP!
TRANSITION New Act provides for two-year transition period, commencing when Act comes into force All clubs that are societies will need to transition Will require some amendments to Constitution and Bylaws (at a minimum transfer of provisions other than name and purposes to Bylaws)
Transition Adopting new Bylaws will not be required but will be recommended: To take advantage of New Act provisions e.g. Approval for Borrowing (Section 34) To avoid confusion due to provisions in the Bylaws that conflict with the New Act e.g. Required action to remove Director (Section 50) Online filing process
Transition - Timing Consider obtaining required member approval to adopt new Constitution and Bylaws compliant with new Act before November 2016 At AGM or other scheduled member meeting File approved Constitution and Bylaws to transition on November 28, 2016
Transition Process 1. Assess the Society s existing constitution and bylaws 2. Prepare transition documents, including: (a) new constitution (b) new bylaws (c) statement of directors and registered office (d) other corporate changes, as necessary (e) director resolution (f) member resolution
Transition Process 3. Obtain director approval of the transition documents 4. Obtain member approval of the transition documents 5. Transition to the New Act by filing the transition documents 6. Receive certified copies of new constating documents, statement of directors and registered office from the Corporate Registry 7. If the society is a registered charity, submit copies of transition documents to Canada Revenue Agency
What should we do now? DON T PANIC! There is time to deal with the New Act and the Transition process itself will be relatively simple This is an opportunity to look at and update constating documents Select/appoint a small constitution and bylaw review team Consider some of the options and potential issues that the New Act will provide Spend time considering the model member and requirements for membership
Society Membership Issues Does your club know who your members are? Do you have any of these? Honourary or Life Members Inactive members Members not in good standing Membership fees Annual declarations Voting and Non-Voting members Update and have Board approve membership list annually!
Process for Review and Revision of Constating Documents Select/appoint a small constitution and bylaw review team List all current and anticipated activities of the society and check activities against the current objects and purposes. Note any apparent deficiencies Review current constitution and bylaws and note any deficiencies or language that is confusing or inconsistent with how the society actually operates Consider the model member and requirements for membership Consider the model director
Process for Review and Revision of Constating Documents Take the noted up current constitution and bylaws, your wish list and all of your questions to a lawyer familiar with not-for-profit constating documents Ask the lawyer to provide you with a new draft and his or her estimated fees for review, drafting and implementation. Develop simple communication strategy for membership with generous time and opportunity for feedback
Process for Review and Revision of Constating Documents Resist temptation to: Fix isolated sections with patchwork amendments Cut and paste from the constating documents of other organizations Change or add to purposes without advice and in some cases advance approval from the Charities Directorate Walk through the new constating documents in the membership meeting where adoption is intended
Thanks for attending! Your questions welcomed ljohnson@dvclawyers.com