In mid-May a measure was quietly passed in the Alberta Legislative Assembly that will allow existing not-for-profit corporations to transfer into or out of the province without having to go through re-incorporation or amalgamation and the accompanying onerous paperwork.
Not-for-profit corporations are generally constituted as a legal structure known as a non-share capital corporation, although they are familiar to the public as not-for-profits. Bill 12, the Statutes Amendment Act (2014), included provisions allowing for ‘continuance’ of entities incorporated under federalor provincial non-share capital corporation legislation, into Alberta, and for continuance of Alberta Societies Act corporations into other jurisdictions. Whether the continuance is into or out of Alberta, it must also be permitted by the legislation elsewhere.
“Non-share capital corporation” and “not-for-profit” are both distinct from “non-profit organization”, which – like “registered charity” – is a federal Income Tax Act term, and is associated with preferential tax treatment, rather than corporate status. Whether a non-share capital corporation or not-for-profit has to pay tax is based on what it does and how any proceeds it generates are used, not on its legal form.
Before the new legislation, a not-for-profit corporation wanting to move to Alberta needed to establish or assume control of a separate corporation in the province and then transfer its assets into that corporation if it wanted to switch jurisdictions.
Where the not-for-profit was a registered charity, this entailed getting charitable status from the Canada Revenue Agency for the separate corporation prior to conveying any assets from the old entity to the corporation in the new jurisdiction. Broadly, governments are moving away from statutes mandating direct regulatory oversight and limitations on powers of non-share capital corporations to an approach that relies more on transparency and accountability or stakeholder mechanisms to provide checks and balances on corporate actions. Even where getting charitable status wasn’t necessary, the not-for-profit often faced a major administrative burden to transfer its assets and liabilities to the second corporation. Continuance allows all the corporation’s assets to be transferred automatically, rather than being conveyed through separately documented transactions.
The new provisions bring welcome flexibility as various jurisdictions are in the process of updating their not-for-profit or non-share capital corporation statutes. This has led many organizations to re-examine their corporate structure and determine whether it is the most appropriate available and/or whether it reflects their current operations.
Often, corporate structures have not changed for many years, and have failed to keep pace with the evolution of the organization in other areas. Not infrequently, groups will have altered their mission, their programming or their procedures without actually taking the steps to update the legal framework within which they operate to reflect those changes.
Moreover, there has been an important shift in the model used for corporate legislation. Broadly, governments are moving away from statutes mandating direct regulatory oversight and limitations on powers of non-share capital corporations to an approach that relies more on transparency and accountability, or stakeholder mechanisms to provide checks and balances on corporate actions.
While generally laudable, and in keeping with the model that has been adopted with respect to the statutory framework of for-profit corporations in recent years, moving to this approach is not as simple – or as appealing – for many voluntary sector groups as at first it might appear. Continuing into a jurisdiction with a more appropriate corporate statute is an option often exercised by for-profit corporations, and which should be available to not-for-profits as well.
The challenges for organizations of moving to this new approach found in most recent non-share capital corporate statutes have been apparent during the introduction of Canada Not-for-profit Corporations Act (CNCA). The CNCA replaces the Canada Corporations Act (CCA), and organizations are expected to transition to it within a three-year period that ends in October 2014. Both for governance and cost reasons many groups are reluctant to operate under the CNCA.
The regulatory approach adopted in the CNCA closely parallels the one in for-profit corporate legislation, with members being treated as the same as, or at least akin to, shareholders. For not-for-profit groups that focus exclusively or primarily on providing services to their members, that makes some sense. However, for groups that serve a larger public purpose – whether as charities or non-profit organizations – members are only one of their stakeholders, and holding the organization accountable largely through members can give short shrift to the role of those other constituencies.
This is recognized to a limited extent in the CNCA by providing a faith-based defence where an action or decision of CNCA religious corporation made on the basis of a tenet of faith held by the corporation’s members is challenged. The provision offers some acknowledgement that a model based on member accountability is not appropriate in every instance. That said, for non-religious groups the CNCA provides much less flexibility for designing a structure taking into account multiple stakeholders than did the old CCA or does the current Societies Act.
Perhaps of even greater concern are the cost implications of certain CNCA provisions designed to promote corporate accountability. These include thresholds mandating the type of financial review an organization must have. These can force a corporation to pay for an expensive audit done by a qualified Public Accountant, even where the circumstances of the corporation may not warrant that level of review of its finances. The Societies Act allows more flexibility for the organization to determine for itself the type of review that is appropriate for it.
Given these and other considerations, the opportunity for organizations to more easily opt to become an Alberta society, rather than be constituted under some other legislation, should be embraced.
As of the time of writing, the new Alberta legislation had received Royal Assent, but had not been proclaimed in force. Once that is done, there will be more and better options for not-for-profit corporations: the sooner, the better.