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11:41 PM 5/5/11 CCCA_V5No2_Dept-LegislativeUpdate-FIN.qxd:CCCA_V1No2_Dept-CourtLeg-V1.qxd Page 13 Good news for Legislative Update Canadian non-profits A wave of new not-for-profit corporate laws will help NFPs organize their affairs to suit their needs. By Wayne D. Gray anadian not-for-profit (NFP) org- are minimum governance standards imposed Soliciting corporations are regulated Canizations have long suffered from on soliciting corporations that are not more tightly than non-soliciting corpora- the lack of adequate incorporation imposed on non-soliciting corporations. tions in five respects. choices both federally and provincially Second, there is a corresponding need to First, in the case of a soliciting corpora- (Saskatchewan excepted). define these two types of corporations. tion, any residual assets are to be distrib- However, the sector’s plea for a modern The Act does not attempt to distinguish uted exclusively to one or more “qualified NFP corporate legislation has finally been between soliciting and non-soliciting cor- donees,” as defined under the Income Tax answered. New legislation in Ontario is porations on the basis of their underlying Act (ITA). Qualified donees include regis- expected to be proclaimed into force in objects or their charitable (or non-charita- tered charities,the Crown (federal,provin- late 2012. New NFP legislation may be in ble) status under the IncomeTaxAct. Instead, cial and municipal.) Non-soliciting corpo- the works in Alberta, BC and Québec. under the Act, the definition of “soliciting rations are free to provide in their articles And the Canada Not-for-profit Corporations corporation”is based on whether aggregate for the distribution of residual property to Act (Act), expected to come into force in receipts from a short list of public sources anyone.The default rule is that, on liqui- late spring, is still on the horizon; the new during the corporation’s financial year are dation, the residual assets of non-soliciting implementation date will depend on the in excess of $10,000. In effect, this low corporations are to be distributed equally legislative agenda of the new Parliament. financial threshold is a de minimus exemp- to members on a per capita basis. The new federal Act will affect approxi- tion designed to prevent the inadvertent Second, a soliciting corporation must mately 19,000 NFP corporations while the capture of corporations that do not receive have a minimum of three directors, at least Ontario legislation covers a further 46,000. significant public funds. two of whom are not officers or employees The funding sources that determine of the corporation. No such restrictions Soliciting vs. whether a corporation is “soliciting” are: apply to a non-soliciting corporation.Third, non-soliciting corporations • (a) public donors (i.e., more specifically, a non-soliciting corporation may adopt a The Act recognizes three types of federal donors who are not members, directors, unanimous member agreement (UMA) NFP corporations: officers or employees of the corporation transferring some or all board powers to the • non-soliciting corporations; at the time of the funding request or members. A UMA is not permitted in the • soliciting corporations; related persons); case of a soliciting corporation. • religious corporations (which are unde- • (b) grants from governments or govern- Fourth, small (as measured by annual fined). mental agencies (whether federal, revenue) soliciting and non-soliciting cor- Non-soliciting corporations are the provincial or municipal); porations are permitted exemptions from residual category. • and conduits that themselves qualify the requirement to appoint a public The basic premise for bifurcating solicit- under (a) or (b). accountant and have an annual audit. ing and non-soliciting corporations is that Most registered charities (including However, the financial thresholds at corporations that receive public funds (in a churches) will be soliciting corporations. which the exemptions apply are much broad sense) should,in the public interest,be Membership-benefit corporations (e.g., lower for soliciting corporations than for ISTOCKPHOTO subject to tighter regulation than those cor- trade or professional associations and golf, non-soliciting corporations. Finally, solic- iting corporation must file their annual tennis or curling clubs) are examples of porations that receive no public funds. There non-soliciting corporations. financial statements with Corporations are two aspects to the distinction.First,there ÉTÉ 2011 CCCA Canadian Corporate Counsel Association 13