Transition GuideReader Rating: 5.00

The Canada Not-for-profit Corporations Act

The new Canada Not-for-profit Corporations Act (NFP Act) establishes a new set of rules for federally incorporated not-for-profit corporations in Canada. These new rules will replace Part II of the Canada Corporations Act (old Act), the law that has governed federal corporations for nearly a century. The rules under the NFP Act are modern, flexible and more suited to the needs of the not-for-profit sector.

What are the benefits of the Not-for-profit Act?

Federal not-for-profit corporations benefit from:

• A clear set of rules that govern the internal affairs of federal not-for-profit corporations
• Less red tape with simplified processes
• More flexibility to make fundamental changes, such as amalgamations, that were not permitted under the old Act
• A more objective standard for directors in carrying out their duties and responsibilities that will reassure individuals who decide to be on a board of directors.

Do these new rules apply immediately?

No. The NFP Act does not automatically apply to existing corporations. Instead, every existing federally incorporated not-for-profit corporation will have to take action to make the transition to the NFP Act. Until that transition is made, the rules under the old Act still apply.

What is the transition process?

The corporation must replace its letters patent, supplementary letters patent (if any) and by-laws with new charter documents. This means that you need to submit articles of continuance to obtain a Certificate of Continuance as well as create and file new by-laws. The articles and by-laws must comply with the NFP Act. These charter documents set out the primary rules governing the corporation.

This guide will assist you in making the transition.

Will the transition affect the registered charity status of my corporation?

Possibly. If your corporation is or intends to become a registered charity under the Income Tax Act, it is strongly recommended that you consult the Charities Directorate of the Canada Revenue Agency (CRA) during the transition process (go to www.cra-arc.gc.ca/charities or call 613-954-0410 or toll free at 1-800-267-2384). The Charities Directorate will provide you with valuable information about the transition that is specific to registered charities, particularly with respect to:

• the statement of purpose
• requirements for the number of directors
• non-profit clauses and clauses related to the remuneration of directors
• the requirement to file documents with CRA after the transition process is complete.

Consulting with the Charities Directorate in advance will help ensure that your corporation maintains its registered charity status.

Are there fees?

No. Corporations Canada does not charge a fee to apply for a Certificate of Continuance and to file by-laws.

Is there a deadline for making the transition?

A not-for-profit corporation must make the transition by October 17, 2014.

What happens if a corporation does not make the transition?

Corporations that do not make the transition by the deadline will be assumed to be inactive and will be dissolved. For registered charities, dissolution could lead to the revocation of their registration as a charity, which would result in the corporation having to pay revocation tax equal to 100% of the value of their remaining assets.

Corporations can take advantage of the benefits of the NFP Act once the transition is complete. The transition process involves obtaining a Certificate of Continuance and making by-laws that comply with the NFP Act.

To make the transition to the NFP Act, a federally incorporated not-for-profit corporation will need to replace its letters patent, supplementary letters patent (if any) and by-laws with a Certificate of Continuance (attached to which are the corporation's articles) and new by-laws that comply with the NFP Act.

The Certificate of Continuance is the same as a Certificate of Incorporation. Both set out the articles that apply to a corporation. Because the corporation is already incorporated, however, it cannot incorporate again under theNFP Act. Instead, it "continues" into the new Act and is issued a Certificate of Continuance instead of a Certificate of Incorporation.

The continuance process involves setting out articles of continuance, having them approved by members and submitting them to Corporations Canada, which in turn will issue a Certificate of Continuance. The articles of continuance are essentially the constitution of the corporation.

Because the rules under the NFP Act are different, what needs to be set out in the articles and by-laws is also different. For that reason, the transition process is not simply a matter of transposing the provisions of the letters patent and supplementary letters patent into the articles and using the same by-laws.

The following steps will guide you through the transition process.

The first step is to review the corporation’s letters patent, supplementary letters patent (if any) and the by-laws. Copies are available from Corporations Canada if you are not able to locate them.

Under the old Act, not-for-profit corporations were required to include a lot of detail in their by-laws, such as procedures for members meetings, the manner of electing or appointing directors, procedures for directors’ meetings, and the procedures for making, amending or repealing by-laws.

The NFP Act doesn’t require this level of detail in the articles or by-laws since many of the rules are contained in the Act. A number of these rules are default rules. The corporation can override these default rules in its articles or by-laws if the rules do not suit its needs. However, there are a few rules that cannot be overridden by the articles or the by-laws. They apply to all corporations.

Refer to Annex A when reviewing your corporation’s letters patent and by-laws. It highlights the main rules usually included in these documents which would no longer be needed since the NFP Act provides the rules. What is currently set out in the letters patent or by-laws may even be inconsistent with the rules under the NFP Act.

During your review, you may wish to note any provisions, other than those set out in Annex A, which are important to your corporation and that you want to keep. You can choose to include them as articles or by-laws under the NFP Act, the focus of the next two steps.

The next step is to draft the articles of the corporation. The articles will be attached to the Certificate of Continuance that is issued to the corporation by Corporations Canada. The Certificate of Continuance and the articles together become the corporation’s constitution and replace the letters patent.

The articles of a corporation are to be set out in a form that is provided by Corporations Canada. The form is called Form 4031 – Articles of Continuance (transition). It is available as a fillable PDF form on Corporations Canada’s website.

The form sets out the following articles:

• Corporate name
• Province or territory where the registered office is situated
• Minimum and maximum number of directors or the fixed number of directors
• Statement of the purpose of the corporation
• Restrictions on the activities that the corporation may carry on, if any
• The classes, or regional or other groups, of members that the corporation is authorized to establish
• Statement regarding the distribution of property remaining on liquidation
• Any additional provisions that the corporation may want in its articles

Additional information you may find useful in preparing articles:

• Annex B has detailed instructions on how to complete the form
• Model Articles, which provide examples of a completed Form 4031 – Articles of Continuance (transition)
• How to Avoid Common Deficiencies in Form 4031 – Articles of Continuance (transition).

A lengthy and comprehensive set of by-laws was required under the old Act to govern the corporation's internal affairs. This is not the case with the NFP Act since the Act already contains many rules. It specifies which by-law provisions are mandatory and provides default rules that apply if the corporation's by-laws do not address certain matters.

There are only two by-law provisions that are mandatory under the NFP Act.^{Footnote 1} At minimum, a corporation's by-laws need to address the following:

• Conditions required for membership
• Notice of meetings to members who are entitled to vote at the meeting

If there are no other provisions in the by-laws, the default rules will apply. If these default rules do not meet the needs of your corporation, you may want to create by-laws to override them.

There may be rules that a corporation wishes to have that are not addressed by the default rules. An example of this is consensus decision-making by members. This rule should be included in the by-laws if the corporation operates in this fashion. Other types of rules that fall under this category are those dealing with discipline of members and dispute resolution mechanisms.

Annex C provides more information on the mandatory by-law provisions and default rules. To assist you in creating by-laws under the NFP Act, refer to the Model By-laws, which would apply to a typical not-for-profit corporation.

Corporations Canada has also developed an online interactive tool called a By-law Builder that can generate the by-laws you want. It allows you to choose provisions that meet the specific needs of your corporation from a number of available options.

Footnotes

Footnote 1

Mandatory by-law provisions must be approved by a special resolution of members. Other by-law provisions requiring a special resolution of members are those that set out the rules on transferability of membership and absentee voting. The remaining by-law provisions may be approved by a simple majority vote.

Return to footnote 1 referrer

A meeting of members will generally need to be held as part of the transition process. This meeting must take place in accordance with the existing by-laws since those are the rules governing the affairs of the corporation until a Certificate of Continuance is obtained.

Despite the voting rules in the existing by-laws, the NFP Act requires that the articles of continuance be approved by a special resolution of members.

You may also wish to use the same approval level for the by-laws. Refer to the Model Special Resolution for the suggested wording of a resolution of the members.

Once the articles have been approved, the next step is to obtain a Certificate of Continuance. To do so, you are required to file the following with Corporations Canada:

• Form 4031 – Articles of Continuance (transition);
• Form 4002 – Initial Registered Office Address and First Board of Directors This form sets out the registered office address and the board of directors at the time of continuance. It is available in a fillable PDF format on Corporations Canada's website; and
• NUANS Name Search Report, if the name of the corporation is changing on continuance.

Use the Checklist for Continuance (transition) Documents to reduce the chances of your application being returned because of deficiencies. Also, see How to Avoid Common Deficiencies in Form 4031 – Articles of Continuance (transition).

When Corporations Canada receives your documents, we will make sure that they have been properly completed and, if applicable, that the new name is acceptable. If so, we will send you a Certificate of Continuance with the articles of continuance attached.

The by-laws do not have to be filed to obtain a Certificate of Continuance. The NFP Act requires that they be filed within 12 months after members have approved them as set out in Step 4. You can, however, file them with the above documents.

Where to file

• By email at corporationscanada@ic.gc.ca
• By fax at 613-941-4803
• By mail at the following address:
  Corporations Canada
  Jean Edmonds Building
  South Tower, 9^th Floor
  365 Laurier Avenue West
  Ottawa, Ontario K1A 0C8

Fee

Existing federally incorporated not-for-profit corporations do not have to pay a filing fee to obtain a Certificate of Continuance.

Additional resources

• Your Reporting Obligations under the Canada Not-for-profit Corporations Act
• Frequently Asked Questions
• Information on the new NFP Act
• Requirements for Soliciting Corporations under the Canada Not-for-profit Corporations Act

Footnotes

Footnote 1

With a few exceptions, by-laws can be made, amended or repealed by a resolution of the board of directors. The resolution takes effect immediately but it is to be submitted at the next meeting of members. The members can vote to confirm, amend or reject the change to the by-laws. If it is important to a corporation that by-laws only take effect when approved by the members, this would need to be stated in the articles or by-laws. Note that directors cannot make by-laws which require a special resolution of members.

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