- a not-for-profit corporation may be subject to restrictions on its activities imposed by other legislation such as the Income Tax Act
- 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
- the by-law must set out the conditions of membership
- ONCA provides a statutory duty of care for directors, which requires 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
- 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
- all applications for articles of incorporation will be submitted directly to ServiceOntario
- the Canada Not-for-profit Corporations Act , for instance, came into effect on October 17, 2011 at the federal level
Definitions
This section explains some of the terms relevant to ONCA .
Articles of incorporation
Articles of incorporation are the documents that create the not-for-profit corporation. ONCA requires that specific information about the not-for-profit corporation be included in the articles of incorporation, including:
- the corporation’s name
- the corporation’s purpose
- the address of the corporation’s registered office
- classes or groups of members and the voting rights of each class or group (if applicable)
Generally speaking, if a corporation’s articles conflict with ONCA or its regulations, the provision in ONCA or its regulations take priority.
Note: For existing not-for-profit corporations previously governed under the Corporations Act , letters patent under the Corporations Act become articles of incorporation under ONCA .
Audit
An audit involves the analysis of a corporation’s financial records by a person permitted to do so under the Public Accounting Act, 2004 , who must also be independent. Each financial statement item is tested to make reasonably sure that a corporation’s financial statements accurately reflect its financial position.
By-laws
By-laws are rules that help govern the corporation’s internal business and do not need to be filed with the government. By-laws regulate the activities or affairs of the corporation. They set out the rights and responsibilities of the members, directors and officers. They also set out the procedures for decision-making and provide further details about the corporation’s structure.
Dissolution
Dissolution means the end of a corporation’s existence. For more information, refer to the Incorporation section of this guide.
Indemnification
Indemnification is compensation a corporation gives to its directors and officers for costs or expenses caused by lawsuits as a result of the directors and officers carrying out their work, duties or responsibilities on behalf of the corporation.
Meetings
The following are some of the common types of meetings referred to in ONCA .
Annual meeting (formerly known as “annual general meeting”)
This is a meeting of the members which the directors must call annually. For more information, refer to section 52 of ONCA .
Special meeting
The directors may call a special meeting of the members at any time. For more information, refer to section 52 of ONCA .
Note: A meeting can be both an annual and a special meeting.
Directors’ meeting
Unless the articles or by-laws state otherwise, the directors may meet at any place and after any notice period that is set out in the by-laws. For more information, refer to section 34 of ONCA .
Ordinary resolution
An ordinary resolution is a decision about the corporation that is made by the members. It is approved by the majority of the votes cast at a members’ meeting, or signed by all members who can vote on the resolution. For more information, refer to section 1 and section 59 of ONCA .
Public benefit corporation
Not-for-profit corporations can also be public benefit corporations if they meet the definition in ONCA . There are two types of public benefit corporations – charitable or non-charitable corporations.
A charitable corporation is automatically a public benefit corporation by definition. For more information, refer to section 1 of ONCA .
A non-charitable public benefit corporation is defined in ONCA as a corporation that receives more than $10,000 in a financial year either in the form of:
- donations or gifts from persons who are not members, directors, officers or employees of the corporation
- grants or similar financial assistance from the federal government or a provincial or municipal government or an agency of any such government. For more information, refer to section 1 of ONCA
A non-charitable corporation is considered to be a public benefit corporation in the next financial year after it receives the sum. For more information, refer to the definition of “public benefit corporation” in section 1 of ONCA .
When a not-for-profit corporation dissolves, it is considered to be a public benefit corporation if it met the definition of “public benefit corporation” in the financial year in which it files its articles of dissolution or in one of the three preceding financial years. For more information, refer to section 167 of ONCA .
Remuneration
Remuneration is payment – such as a salary that a director, officer or employee of a corporation receives – for fulfilling their work, duties or responsibilities. For more information, refer to section 47 of ONCA .
Review engagement
A review engagement can be done in place of an audit in certain circumstances and is a review of a corporation’s finances performed by a person permitted to do so under the Public Accounting Act, 2004 who must also be independent.
It involves enquiry, discussion and analysis to make reasonably sure that a corporation’s financial statements are in order. It is less extensive than an audit and, as a result, generally less expensive.
Special resolution
A special resolution is a decision about the corporation that generally involves an important change, such as a change to the corporation’s articles or authorization for a corporation to continue into another jurisdiction.
A special resolution is approved by at least two-thirds of the votes cast at a members’ meeting or if all voting members agree. For more information, refer to section 1 and section 59 of ONCA .
Not-for-profits and incorporation
This section provides basic information on the advantages and disadvantages of incorporating a corporation under ONCA .
Not-for-profit
A not-for-profit corporation:
- is dedicated to purposes other than pursuing a profit
- is a corporation without share capital, which means that the corporation does not issue ownership shares
- may not distribute any profits to its members, directors or officers (for more information, refer to section 89 of ONCA )
- must use any profit exclusively for its not-for-profit purposes
- includes both charitable and non-charitable organizations
Examples of not-for-profit organizations
Some examples of not-for-profit organizations include:
- sporting and athletic organizations
- social clubs
- day cares
- service clubs such as Rotary and Lions
- charitable corporations
Note: Not all not-for-profit organizations are incorporated. ONCA only governs not-for-profit organizations incorporated in Ontario.
Difference between a not-for-profit corporation, a for-profit business corporation, a co-operative corporation and a charitable corporation
Not-for-profit corporation
Activities are for purposes that do not include the financial gain of its members, or the benefit of for-profit organizations such as business corporations.
It can earn a “profit”, but any profit must be used to further the purposes of the corporation rather than be paid to the members.
If any of the purposes are of a commercial nature, the corporation’s articles must state that the commercial purpose is intended to advance or support one or more of the not-for-profit purposes. For more information, refer to section 8 and section 89 of ONCA .
For-profit business corporation
Formed to make a profit and may distribute that profit to its shareholders.
Co-operative corporation (Co-op)
A business organization owned by members who use its services and is controlled equally by the members. A co-op must carry on business on a co-operative basis.
It is recommended that not-for-profit organizations get professional advice about the appropriate structure for the organization’s purposes.
Charitable corporation
A charitable corporation is a type of not-for-profit corporation. Not all not-for-profit corporations are charitable corporations. To be a charitable corporation, a corporation must meet the requirements for not-for-profit corporations and some additional requirements that are explained further in the Charitable corporations section of this guide.
Public benefit corporations
Under ONCA , public benefit corporations include all charitable corporations and some non-charitable corporations that receive outside funding. Special rules apply to public benefit corporations under ONCA that do not apply to other not-for-profit corporations. Examples include:
- different audit and review engagement requirements (refer to section 76 of ONCA for more information)
- board composition
- not more than one-third of the directors of a public benefit corporation may be employees of the corporation or of any of its affiliates
- refer to section 23 of ONCA for more information
A few rules also apply specifically to charitable corporations in areas such as indemnification, insurance, remuneration and conflict of interest for directors and officers.
Distribution of a corporation’s profits or property
Generally, a corporation’s profits or its property may not be distributed to a member, a director or an officer of the corporation. For more information, refer to section 89 of ONCA . However, if the corporation is not a public benefit corporation, ONCA provides for distribution to members when the corporation winds up or dissolves, unless the articles state otherwise. For more information, refer to section 150 and section 167 of ONCA .
Incorporating a not-for-profit organization
Not-for-profit organizations may incorporate if they wish, but there is no requirement to do so. An organization can be formal (incorporated) or informal (unincorporated). By incorporating under ONCA , an organization must comply with the rules set out under it. This includes:
- keeping records
- having annual meetings
- filing annual returns
After considering the benefits and obligations of incorporation, an organization may decide against it. If an organization chooses not to incorporate, it is not called a corporation. It is recommended that organizations get professional advice about the appropriate structure for the organization’s purposes.
Benefits of incorporating
Some of the reasons to incorporate include:
Formal operating structure
A corporation is a distinct legal entity with the powers of a natural person – it can sue and be sued in its own name (an unincorporated organization can only sue through its members personally). Unlike an unincorporated organization, a corporation can also enter into contracts .
Permanence
A corporation may go on forever, even if membership changes, until the corporation is dissolved.
Members have limited legal responsibility (liability)
Generally, members of a corporation are not personally responsible for its debts and obligations, unlike members of an unincorporated organization. Directors and officers, however, may be personally responsible in certain circumstances:
Refer to the Directors and officers section of this guide for more information.
Title to land can be in the corporation’s name
A corporation can own property in its own name. Legal title to the property stays with the corporation even if membership changes.
Note: An organization should consult its lawyer to decide whether or not to incorporate.
How to incorporate
ServiceOntario is responsible for processing applications for articles of incorporation under ONCA . Please see ServiceOntario’s site for more information.
What a corporation must do under ONCA
An organization that incorporates under ONCA must:
- keep records (for example, a register of members which lists all the members of the corporation)
- hold an annual meeting of members
There may be additional requirements under other statutes such as the Corporations Information Act . Incorporation also means spending time and resources on activities such as:
- the initial cost of incorporating
- filing annual corporate tax returns
- holding annual meetings
Incorporate provincially or federally
A not-for-profit corporation may choose to incorporate federally or provincially, depending on the scope of the corporation’s activity. Some not-for-profit corporations that are national in scope tend to incorporate federally. Federal not-for-profit corporations can operate in Ontario.
No requirement to incorporate
Not-for-profit organizations may incorporate if they wish, but there is no requirement to do so. An organization can be formal (incorporated) or informal (unincorporated). By incorporating under ONCA , an organization must comply with the rules set out under it. This includes keeping records, having annual meetings and filing annual returns. After considering the benefits and obligations of incorporation, an organization may decide against it. If an organization chooses not to incorporate, it is not called a corporation.
Alternative ways for organizations to organize
An organization may function as:
- a business corporation
- a trust
- a partnership
- a co-operative
- an unincorporated association
Commercial activities and profits
Not-for-profit corporations can make a profit
A not-for-profit corporation can make a “profit” as long as it is reinvested to support the not-for-profit purposes of the corporation. Not-for-profit corporations can have commercial activities but if any of the purposes are of a commercial nature, the corporation’s articles must state that the purpose is intended to advance or support one or more of the not-for-profit purposes. For more information, refer to Not-for-profits and incorporation above and section 8 of ONCA .
For example, a not-for-profit corporation incorporated for a recreational purpose that wants to bring in a stable base of funding may decide to sell T-shirts. ONCA allows this activity as long as the profit from selling the T-shirts is used to support the group’s not-for-profit recreational purpose.
Restrictions on not-for-profit corporations
Restrictions on not-for-profit corporations may be set out in a minister’s regulation under ONCA .
There may be other restrictions based on other laws or the decisions of the courts that may also govern the corporation.By-laws for new corporations under ONCA
A standard organizational by law approved by the Ministry under ONCA will automatically apply to a corporation that does not pass an organizational by-law within 60 days after the date of incorporation.
The standard organizational by-law deals with organizational matters, such as who can sit on the board, the duties of officers and members and how to call meetings. Refer to section 18 of ONCA .
The corporation may change or repeal and replace the standard organizational by-law at any time by following the procedures in ONCA .
Existing not-for-profit corporations previously governed under the Corporations Act may wish to refer to the draft standard organizational by-law as a guide or model, and should ensure that any changes made to their by-laws comply with ONCA . Existing not-for-profit corporations previously governed under the Corporations Act should refer to the transition considerations page for more information.
Assets of a dissolved corporation
When a corporation winds up or dissolves, the way assets are handled depends on whether or not the not-for-profit corporation is a public benefit corporation. Refer to section 150 and section 167 of ONCA .
When a not-for-profit corporation that is not a public benefit corporation winds up or dissolves, its debts are repaid first and then any remaining assets must be distributed in keeping with its articles. If the articles do not say anything about how the assets are to be distributed, the assets must be distributed to the members in a way that reflects their rights and interests in the corporation. Refer to section 150 and section 167 of ONCA .
Refer to the charitable corporations section of this guide for the requirements when a charitable corporation winds up or dissolves.
When a non-charitable public benefit corporation winds up or dissolves, its debts are paid first and then any remaining assets must be distributed to another public benefit corporation with similar purposes to its own or to a government or government agency. Refer to section 150 and section 167 of ONCA .
Charitable corporations
Public benefit corporations: charitable versus non-charitable
Public benefit corporations include all charitable corporations and certain non-charitable corporations.
Special rules apply to public benefit corporations in terms of:
- the type of financial review that is required
- the proportion of employees of the corporation or of any of its affiliates who may be on the board of directors
- how distributions are made when the corporation winds up or dissolves
Charitable corporations
Charitable corporations have only charitable purposes and provide an important benefit to the general public or an important section of the community.
Examples of charitable corporations include schools, hospitals and religious organizations.
Non-charitable corporations
Certain non-charitable corporations (corporations whose purposes are not exclusively charitable) can be public benefit corporations if either:
- they have received donations in a financial year of more than $10,000 from people not connected to the corporation
- they have received more than $10,000 in a financial year in the form of government financial assistance
Examples of non-charitable public benefit corporations:
- a service club that has received more than $10,000 from the public in a financial year
- a recreational club that has received more than $10,000 in government funding in a financial year
How an organization qualifies as a charitable corporation
To qualify as a charitable corporation, a corporation must devote all of its assets to one or more of the following areas:
- relief of poverty
- advancement of education
- advancement of religion
- other purposes beneficial to the community, as determined by the courts, but not falling under any of the above (for example, preserving the environment, promoting health care or establishing a community centre)
For more information on the requirements to incorporate a charitable corporation in Ontario, refer to the Office of the Public Guardian and Trustee’s ( OPGT ) website. There you’ll find a list of pre-approved purpose clauses that organizations wanting to qualify as a charitable corporation can use to incorporate.
Apply to become a registered charitable corporation
To become registered, a charitable corporation must make a separate application to the Charities Directorate at the Canada Revenue Agency ( CRA ). Visit the Charities Directorate site for details about the registration process and contact information.
Not-for-profit corporations and official income tax donation receipts
A not-for-profit corporation may not issue official income tax donation receipts unless it is registered as a charitable corporation with CRA .
Conflicts between charities law and ONCA
Where ONCA or its regulations conflict with charities law, charities law takes priority. Refer to section 5 of ONCA .
ONCA is a corporate statute, and deals with corporate matters such as directors’ duties and members’ rights. Charities law is made up of court decisions (i.e. common law) and statutes that apply to charitable corporations. Charities law includes, among other things, the fiduciary or financial obligations of directors of charitable corporations, the Charities Accounting Act and the investment provisions of the Trustee Act .
For example, subsection 47(1) of ONCA allows directors to receive remuneration (payment such as a salary or reimbursement for expenses) for their services as a director. Different rules apply to directors of charitable corporations. Charities common law, however, prohibits directors of charitable corporations from receiving remuneration for their services as a director or for any other services unless an order is obtained from the court or under section 13 of the Charities Accounting Act . As there is a conflict between section 47 of ONCA and the rules relating to charitable corporations, charitable corporations cannot rely on subsection 47(1) of ONCA as authority to be paid. The laws prohibiting directors of charitable corporations from being paid override subsection 47(1) of ONCA .
However, Ontario Regulation 4/01 made under the Charities Accounting Act (the Regulation), allows charitable corporations operating in Ontario to compensate directors and persons connected to them, without a court order, provided specific requirements are met. For example, where a director is providing services in their capacity other than a director.
Change a charitable corporation to a non-charitable not-for-profit corporation
An incorporated charitable corporation cannot change to a non-charitable, not-for-profit corporation.
Funds intended for charitable purposes cannot later be used for non-charitable purposes.
Assets of a dissolved charitable corporation
When a charitable corporation winds up or dissolves, after paying any debts and obligations, it must distribute any remaining assets to a charitable corporation with similar purposes to its own, or to a government or government agency. Refer to section 150 and section 167 of ONCA . A charitable corporation has other restrictions (for example, restricted purpose trust funds) that it must be careful about.
Consent of the Office of the Public Guardian and Trustee
The written consent of the Office of the Public Guardian and Trustee ( OPGT ) is required for corporate filings under ONCA when:
- an applicant wishes to use the following restricted words in a corporate name (section 2 of the Names and Filings Regulation under ONCA ):
- "charity”, “organisme de bienfaisance”, “charitable”, “caritative” or any variation of those words
- “foundation” or “fondation”, if the word suggests the corporation is a charity
If OPGT approval is required, the charity should contact the Charitable Property Program at the OPGT for further information ( 416-326-1963 or PGT-Charities@ontario.ca).
As it can be difficult to draft purpose clauses which legally qualify as charitable, applicants may wish to use examples of purposes provided by the Canada Revenue Agency ( CRA ) for some of the most common types of charitable corporations. The CRA ’s examples of purposes can be found online at the charitable purposes and activities page.
The CRA ’s examples of purposes may not be suitable for all charities, and you may need to draft your own charitable purposes. When it is necessary for you to draft your own charitable purposes, the CRA has also published guidance on how to draft charitable purpose clauses entitled, “How to draft purposes for charitable registration.”
Important: To issue tax receipts to donors, an organization must make a separate application to the Charities Directorate of the CRA to get a charitable registration number. Use of a charitable purpose clause is only one of several requirements, and does not guarantee the organization will qualify for registered charitable status or that the organization’s purposes will not have to be amended.
Approval of the Charities Directorate of the Canada Revenue Agency (Canada Revenue Agency)
Approval of the Charities Directorate at Canada Revenue Agency is not needed to incorporate a charitable corporation. However, if applicants are unable to use the OPGT ’s pre-approved purpose clauses or the Charities Directorate’s model "object" clauses to describe their organization’s purposes, applicants should get pre-clearance from the Charities Directorate for tailor-made purpose clauses.
If applicants incorporate using purposes that are not acceptable to the Charities Directorate, then the corporation may need to amend its purposes by applying for articles of amendment. Please consult CRA's website for more information.
Directors, officers and committees
This section provides basic information on some of the key duties and obligations of directors and officers under ONCA .
Directors and officers
Specific duties of directors and officers
Directors and officers must comply with ONCA and its regulations, the corporation’s articles and by-laws. Refer to section 43 of ONCA .
ONCA requires that, in exercising their duties, directors and officers must:
- act honestly and in good faith to serve the best interests of the corporation
- exercise the care, diligence and skill that a reasonably careful person would exercise in similar circumstances
Refer to section 43 of ONCA .
After becoming a director or officer
Directors or officers should:
- review articles of incorporation, by-laws, financial statements and the corporation’s website
- consider whether they have any potential conflicts of interest in relation to the corporation’s activities
- become familiar with the corporation’s reporting requirements
- check whether the corporation provides liability insurance or indemnification for directors and officers
How the corporation can help protect a director or officer from legal liability
ONCA states that a corporation may indemnify or provide money to a director or officer for the costs, charges and expenses of a legal proceeding if the individual acted honestly and in good faith with a view to the best interests of the corporation. Refer to section 46 of ONCA .
A corporation may also buy and keep liability insurance for the benefit of directors or officers. Refer to section 46 of ONCA .
While certain conditions apply, a regulation under the Charities Accounting Act allows charitable corporations to indemnify or buy liability insurance for their directors, officers or trustees providing they are managing the charitable corporation honestly and in good faith. Refer to section 46 of ONCA .
Paying a director or officer of a charitable corporation
Directors of charitable corporations are generally prohibited by common law from receiving compensation as a director or for services provided in any other capacity, such as an employee of the charitable corporation. Ontario Regulation 4/01 under the Charities Accounting Act , allows charitable corporations operating in Ontario to compensate directors and persons connected to them, without a court order, provided specific requirements are met. For example, for services provided by a director in their capacity other than a director. If a charitable corporation wishes to make a payment that is not authorized under the Regulation, a court order is required. In cases where all parties consent, a Court order may be obtained through an application to the Office of the Public Guardian and Trustee under section 13 of the Charities Accounting Act .
This rule does not apply to officers who are not directors, nor does it prohibit directors from being reimbursed for their out-of-pocket expenses. For more information, refer to the Incorporation section of this guide and the Guidance of the Public Guardian and Trustee as it relates to Payments to Directors and Connected Persons. You may also contact the Office of the Public Guardian and Trustee ( OPGT ).
Payment for services in another capacity
As long as the by-laws and the conflict of interest provisions of ONCA allow it, a director of a non-charitable corporation or an officer or member of a charitable or non-charitable corporation can receive reasonable remuneration for any services to the corporation that they perform in any other capacity (for example, if a director also provides consulting services).
Directors
A director is an elected or appointed member of a board of directors. Directors manage or supervise the management of the corporation. Refer to section 21 of ONCA . In general terms, this means:
- ensuring the purposes of the corporation are properly carried out
- setting the corporation’s long-range objectives and strategic plans
- being responsible for all aspects of the corporation’s operations
- ensuring the corporation’s financial stability
- supervising the corporation’s management and staff
How to become a director
A person becomes a director if:
- they are elected by the members (refer to section 24 of ONCA )
- the corporation’s by-laws specify a person is a director because they have a specific office, such as past president of the corporation, or they hold a position at another organization (refer to section 23 of ONCA )
- they are appointed by other directors or by a court (refer to section 24 or section 28 of ONCA )
A person who is elected or appointed to become a director must consent before or within 10 days after their election or appointment. Refer to section 24 of ONCA . In some circumstances a person may be deemed to be a director if all directors resign or are removed without replacement. Refer to section 29 of ONCA .
Required legal qualifications of a director
A director must be:
- an individual
- 18 years of age or older
- a person who has not been found incapable of managing property under the Substitute Decisions Act. 1992 or the Mental Health Act
- a person who has not been found incapable by any court in Canada or elsewhere
- not bankrupt
The by-laws may have additional qualifications. Refer to section 23 of ONCA .
Non-members can be directors
Non-members can be directors of a not-for-profit corporation unless the by-laws state otherwise. Refer to section 23 of ONCA . There are special rules for directors of public benefit corporations. Only one-third of the directors of a public benefit corporation may be employees of the corporation or its affiliates. Special rules that apply to directors of charitable public benefit corporations are listed below. Otherwise, there is no limit to the number of employees who may be directors. Refer to section 23 of ONCA .
Director’s term of office
A director’s term of office is set out in ONCA to a maximum of four years. If the by-laws do not say otherwise, a director’s term is one year. A director may be re-elected or re-appointed. Refer to section 24 of ONCA .
Directors can attend members’ meetings
Directors have the right to attend and be heard at members’ meetings. Refer to section 33 of ONCA . However, members do not have the right to attend directors’ meetings.
Director can also be officers
A director may be appointed to any office of the corporation. Refer to section 42 of ONCA .
Number of directors on the board
A not-for-profit corporation must have at least three directors on its board of directors. The articles may provide for a minimum and maximum number of directors. Refer to section 22 of ONCA .
Change the number of directors
The members of a corporation may change or amend its articles to have more or fewer directors, or to set the minimum or maximum number of directors. Refer to section 103 and section 30 of ONCA . If a corporation has a range of directors, the number of directors within the range must be fixed by a special resolution of the members. The members can also give the board of directors the authority to fix the number of directors. Refer to section 22 of ONCA .
Remove a director
Members can remove a director by ordinary resolution at a special meeting. This does not apply to a director who is appointed because they hold a particular office. If a director is elected by a particular class of members, only the members of the class can remove the director in this way. Refer to section 26 of ONCA .
When a director stops holding office
A director stops holding office when the director (refer to section 25 of ONCA ):
- resigns
- a director resigns by giving their resignation, which takes effect when it is received by the corporation or at the time given in the resignation, whichever is later (refer to section 25 of ONCA )
A director whose term is not stated in the by-laws stops holding office at the close of the next annual meeting. A director elected for a stated term will stay in office until their successor is elected or appointed. Refer to section 24 of ONCA .
Filling a vacant director position
The board of directors may fill a vacant director position, unless the by-laws state that members must vote to fill it. Refer to section 28 of ONCA .
The board of directors (or the members, if they have voted to remove a director) generally can decide when the vacancy is filled. Refer to section 26 and section 28 of ONCA .
Key potential legal liabilities of directors
Directors generally are not personally liable for debts of the corporation other than for money or property distributed or paid under section 39 and for employees’ wages and vacation pay under section 40.
Directors could be personally liable if they mismanage corporate property. Refer to the reasonable diligence defence in section 44 of ONCA .
Directors may also be liable under other federal and provincial statutes that apply to the corporation.
How ONCA protects directors from legal liability
ONCA sets out a due diligence and good faith reliance defence (refer to section 44), which says that a director is not legally liable under section 39 if they acted with the care, diligence and skill with which a reasonably careful person would have acted in similar circumstances.
The defence includes relying in good faith on the advice of advisors. This defence will allow directors to rely in good faith on professional advisors, and advice by management and other employees of the corporation (for example, reliance on audit reports prepared by an independent auditor).
When directors can be paid
Directors can be paid if:
- the organization is not a charitable corporation(however, if certain requirements are met, Regulation 4/01 made under the Charities Accounting Act , allows charitable corporations operating in Ontario to compensate directors and persons connected to them, without a court order. Learn more about these requirements at the Guidance of the Public Guardian and Trustee as it relates to Payments to Directors and Connected Persons)
- the articles or by-laws of the corporation do not prohibit it
Refer to section 47 of ONCA .
Special rules for directors of charitable corporations
Special rules apply to directors of charitable corporations in these areas:
- conflicts of interest
- compensation
- indemnification
- liability insurance
- investments
- amending purpose clauses
- resigning as a director
Please contact the Office of the Public Guardian and Trustee for additional information. If there is a conflict between ONCA or its regulations, and any other act, regulation or law that applies to charitable corporations, the other act, regulation or law applying to charitable corporations takes priority. Refer to section 5 of ONCA .
Officers
An officer is generally a member of a corporation’s management team who reports to the board of directors. Officers must include a chair appointed from the board of directors and may include a president, vice president, treasurer and secretary. One person may hold two or more officer positions. For example, the same person may hold the offices of chair and president. Refer to section 42 of ONCA . If you are a director or officer of a charitable corporation, there are special rules regarding remuneration. See Paying a director or officer of a charitable corporation
Officers have the powers and authority set out in the articles or by-laws or given to them by the board of directors. They run the day-to-day operations of the corporation. Refer to section 42 of ONCA .
How to become an officer
Subject to the articles or the by-laws, officers are appointed by the board of directors. Refer to section 42 of ONCA .
Officer’s term of office
An officer’s term of office is more flexible than that of a director, and is typically set out in the by-laws of a not-for-profit corporation. If no limit is imposed in the by-laws, the term of office continues indefinitely.
Committees
Some corporations may choose to establish committees. A board of directors can set up committees to focus expertise where it can best be used and to manage the flow of information. Examples of committees include an audit committee, a fundraising committee and an executive committee. The responsibilities of a specific committee may vary from corporation to corporation.
A committee, or a managing director, can have the authority to make some decisions that bind the corporation, if the board of directors give them that authority. Refer to section 36 of ONCA . Members of an executive committee must also be members of the appointing board of directors. An audit committee must not be formed with a majority of officers or employees of the corporation. Refer to section 80 of ONCA .
Conflict of interest
A conflict of interest is generally a situation where a director or officer has a personal interest in or can benefit from a business deal arising from their work with the not-for-profit corporation. For example, if a not-for-profit corporation is entering into a contract with another company, a director who would personally gain something from that contract has a potential conflict of interest. Refer to section 41 of ONCA for more information.
If a director or officer is in a conflict of interest
ONCA lists specific requirements for both directors and officers to report conflicts of interest in various circumstances. Generally, if a director or officer is in a potential conflict of interest, they must promptly report the conflict to the corporation and normally they cannot attend any part of a meeting in which the matter is discussed or voted upon.
ONCA also states when a director or officer must report their interest, depending on the circumstances (for example, reporting may be required at the meeting when a proposed contract is first considered). There are exceptions for certain types of conflicts. Refer to section 41 of ONCA .
Important: It is recommended that directors and officers get professional advice regarding potential conflicts of interest.
In the case of a public benefit corporation that is also a charitable corporation, directors are prohibited from acting in a conflict of interest. In these situations it’s not enough for the director to declare a conflict, leave the room and not vote on the matter. As a result, directors of charitable corporations cannot act in a conflict unless an order is obtained from the court or under section 13 of the Charities Accounting Act . Please contact the Office of the Public Guardian and Trustee for additional information.
Members
This section provides basic information on some of the key rights and duties of members under ONCA .
A member of a not-for-profit corporation is a person (including a corporation) who supports or benefits from the goals and objectives of the corporation. The by-laws of a not-for-profit corporation set out the membership conditions that determine which persons are eligible to become members. Refer to section 48 of ONCA .
Rights and responsibilities
Members' rights
Members of not-for-profit corporations have a number of rights. Some of these rights can be found in ONCA , while other rights may be specifically set out in a not-for-profit corporation’s articles and by-laws. These include the right to:
- attend annual meetings of the members of the corporation (formerly known as annual general meetings), if the member has the right to receive notice of the meeting (refer to section 55 of ONCA )
- vote at any members’ meeting if the member has voting rights
- make or discuss suggestions (proposals) for consideration at members’ meetings, which may be put into effect if passed (refer to section 56 of ONCA )
- call a meeting of the members if at least 10 per cent or a lower percentage of the members (as provided in the by-laws) request it (refer to section 60 of ONCA )
- use other means of voting (for example, mailed-in ballot, telephone or electronic means), in addition to or in place of allowing for the use of proxies (other people acting on the member’s behalf), if allowed in the by-laws (refer to section 53 and section 67 of ONCA )
- receive a copy of financial records before the corporation’s annual meeting at the member’s request (refer to section 84 of ONCA )
Members cannot attend directors' meetings
Members do not have the right to attend directors' meetings. However, directors have the right to attend and be heard at members' meetings. Refer to section 33 of ONCA .
How a member can get information about the corporation
A member can have one copy of the articles and by-laws provided to them upon request and free of charge. Refer to section 95 of ONCA . During the corporation’s regular office hours members may examine and take copies (for a reasonable fee) of:
- minutes of members’ meetings
- members’ resolutions
- lists of directors, officers and members
If a member wants to examine the list of members, the request must include a statutory declaration (i.e. a legal document used to allow a person to confirm something is true in order to satisfy a legal requirement. It is similar to an affidavit, which is a formal sworn (under oath) statement of fact). ONCA outlines the contents of the statutory declaration and limits how the information may be used. Refer to section 96 of ONCA .
Members have the right to receive the annual financial statements at every annual meeting. Upon request, members can receive these financial statements before an annual meeting. Refer to section 84. Members also have the right to examine and make copies of financial statements at any other time. Refer to section 98 of ONCA .
Personal liability for the debts of a not-for-profit corporation
Generally, members are not personally responsible for the debts of a not-for-profit corporation. Refer to section 91 of ONCA .
Annual dues
Members may need to pay annual dues if the corporation’s directors make this a membership requirement. Refer to section 86 of ONCA .
Make sure directors and officers are acting in the corporation’s best interests
Members can take a number of actions under ONCA to make sure directors and officers are properly supervising the management of the corporation and complying with their duties. For example, members have the right to:
- apply to the court for a compliance order to make officers and directors comply with ONCA , the articles and by-laws of the not-for-profit corporation (refer to section 191 of ONCA )
- remove a director from office by ordinary resolution at a special meeting (refer to section 26 of ONCA )
- have greater access to financial statements to make sure their corporation’s financial position is effectively supervised (for example, upon request, a member can receive financial statements before an annual meeting) (refer to section 84 of ONCA )
- in the case of a not-for-profit corporation that is not a public benefit corporation, disagree on certain fundamental changes and have any financial interest they may have re-purchased by the corporation (refer to section 187 of ONCA )
- apply to the court for an order winding up the corporation (refer to sections 136 to 138 of ONCA )
- apply to the court to require an investigation of the corporation (refer to section 174 of ONCA )
- apply to the court for permission to act in the name of the corporation or to intervene in an action in which the corporation is a party (a derivative action)
- this is not available for a religious corporation (refer to section 183 of ONCA )
General information
When a member’s proposal does not have to be included in a meeting notice
The corporation does not have to include a member’s proposal in a meeting notice if:
- the proposal is not submitted at least 60 days before the meeting
- the primary purpose of the proposal appears to deal with a personal claim or to resolve a personal complaint against the corporation or its directors, officers, members or debt obligation holders
- the proposal does not relate in a significant way to the activities or affairs of the corporation
- the right to make a proposal is being abused for publicity
- a very similar proposal was suggested and voted down within the last two years
- the member failed to present a proposal that the member requested within the last two years (refer to section 56 of ONCA )
How a membership ends
Unless the articles or by-laws state otherwise, a membership ends when:
- the member dies or resigns
- the member is expelled or their membership is otherwise ended in keeping with the articles or by-laws
- the membership expires
- the corporation is liquidated or dissolved (refer to section 50 of ONCA )
For a corporation that is not a public benefit corporation, the membership interest may be re-purchased by the corporation in certain circumstances. Refer to section 187 of ONCA ).
Discipline of a member and terminating a membership
The articles or by-laws may give the directors or members the power to discipline a member for cause (for example, suspension, fine, expulsion or refusal to re-admit as a member), or their membership can be terminated. The articles or by-laws must set out the circumstances and the steps to be followed. Any discipline or termination must be done in good faith and in a fair and reasonable way.
A member must be given at least 15 days’ notice of a disciplinary action or termination. The notice must give reasons and must explain that the member has the right to be heard orally, in writing or in another format allowed by the articles or by-laws. Refer to section 51 of ONCA .
Transferring a membership
Unless the articles or by-laws state otherwise, a membership may be transferred, but only to the corporation. Refer to section 48 of ONCA .
A non-member can become a director
A director of a corporation does not have to be a member of the corporation unless the by-laws state otherwise. A director may be a member of the corporation. For public benefit corporations, only one-third of the directors of a public benefit corporation may be employees of the corporation or of any of its affiliates. Refer to section 23 of ONCA .
Payment and reimbursement of expenses for services performed for the corporation
As long as the by-laws allow it, a member of a corporation can be remunerated and reimbursed for reasonable expenses for any services to the corporation that they perform in any other capacity (for example, if a member also provides consulting services). Refer to section 47 of ONCA .
Requirements for financial reporting
Members must appoint an auditor or a person to conduct a review engagement (which is less extensive and less expensive than an audit) of the corporation at every annual meeting. Some corporations meeting certain requirements do not need an audit or review engagement. Refer to section 68 and section 76 of ONCA.
The auditor or person conducting a review engagement must prepare a report on the corporation’s finances. The directors must provide it to the members at every annual meeting. Refer to section 78 and section 84 of ONCA
Auditing or conducting a review engagement of a corporation
In order to do an audit or conduct a review engagement of a corporation, a person must be permitted to do so under the Public Accounting Act, 2004 and be independent. Refer to section 69 of ONCA .
Waiving an audit requirement in favour of a more flexible review engagement or waiving both an audit and a review engagement
Waiving an audit and/or review engagement depends on whether the not-for-profit corporation is also a public benefit corporation and its annual revenue. Refer to section 76 of ONCA .
Public benefit corporations
Members of a public benefit corporation with annual revenue of more than $100,000 but less than $500,000 can waive the audit requirement, but the corporation still needs to conduct a review engagement. If a public benefit corporation has annual revenue of $500,000 or more, an audit is mandatory. Refer to section 76 of ONCA . Similarly, members of a public benefit corporation with annual revenue of $100,000 or less can waive both the audit and the review engagement. Refer to section 76 of ONCA .
The amounts indicated above could be amended by regulation at a future date. An extraordinary resolution (approval by at least 80 per cent of the members present at a special members’ meeting where there are enough members to take a vote or if all voting members agree in writing) is needed to waive an audit or review engagement requirement. This resolution applies until the next annual meeting of the members. Refer to section 76 of ONCA .
Other not-for-profit corporations
If a corporation is not a public benefit corporation and has annual revenue of more than $500,000, its members can waive the requirement to have an audit but must conduct a review engagement. Similarly, if this type of corporation has annual revenue of $500,000 or less, its members can waive both an audit and a review engagement. Refer to section 76 of ONCA .
In each case, an extraordinary resolution (approval by at least 80 per cent of the members present at a special members’ meeting where there are enough members to take a vote or if all voting members agree in writing) is required to waive an audit or review engagement requirement. This resolution is valid until the next annual meeting of the members. Refer to section 76 of ONCA .
Directors’ needs to present to members about a corporation’s finances
The directors must present the following documents to the members at every annual meeting:
- the financial statements approved by the directors
- the report of the auditor or the report of the person who conducted a review engagement
- any further information regarding the corporation’s financial position and its operations that the articles or by-laws require
Note: Upon request, members can receive these financial documents before an annual meeting.
For more information refer to section 84 of ONCA .Funding opportunities for not-for-profits
Find government funding, loans and other kinds of financial assistance available to not-for-profit corporations.
View a full list of Transfer Payment Ontario funding opportunities:
Available funding opportunities from the Ontario GovernmentLearn how to apply for funding by accessing Transfer Payment Ontario:
Get funding from the Ontario governmentRelated information
- Rules for not-for-profit and charitable corporations
- Consumer Protection Ontario
- Available funding opportunities from the Ontario Government
