The new Canada Not-for-Profit Corporations Act came into force October 17, 2011. All federally incorporated not-for-profit corporations must continue into this new Act by October 17, 2014. Failure to continue the not-for-profit corporation will result in dissolution.
The new Canada Not-for-Profit Corporations Act makes positive improvements to the not-for-profit sector particularly in the areas of powers, corporate governance and accountability. Under the old regime, a not-for-profit corporation only had the powers expressly granted to it under its Letters Patent. Under the new Canada Not-for-Profit Corporations Act, a not-for-profit corporation has the powers of a natural person subject only to restrictions in the articles, thus opening opportunities for non-for-profit to engage in activities that might previously have been unable to pursue. Corporate governance has been brought more into line with those applicable to the for-profit sector. Accountability has been made more rational, with greater accountability to members including the right of members to access oppression remedies, and with the mandated requirement for audited financial statements being eliminated for some lower revenue corporations.
The transition by a not-for-profit corporation from the old act to the new Canada Not-for-Profit Corporations Act is made by a continuance. A continuance is filing of Articles of Continuance, along with the new by-laws with the Director for the Canada Not-for-Profit Corporations Act. The Articles of Continuance and new by-laws must be approved by the members by special resolution prior to submission. While there is no fee for the continuance, the process is not trivial and requires significant changes to the by-laws. The good news is that in many cases the by-laws may be significantly reduced because the default provisions of the new Act may be relied upon. A clear understanding of the new Canada Not-for-Profit Corporations Act is required in order to appropriately formulate the new by-laws to preserve the intentions of the members.
We represent the interests of a number of not-for-profit corporations located in Ottawa and elsewhere in the Province of Ontario.
I have a corporation the shares of which are held only by me and members of my immediate family. Do I really need to have annual minutes?
If your corporation is audited by the CRA and matters, such as the declaration of dividends, have not been formally documented by a written resolution of the directors or in annual minutes, the consequence can be severe. There are other risks that may be avoided by having minutes prepared annually. This is analogous to your dentist who encourages you to have good dental hygiene and periodic check-ups so that small problems do not become big problems. Practicing good corporate hygiene just makes good sense.
The minimum legal obligation of a corporation is to hold an annual meeting of shareholders to consider the financial statements, elect directors and to appoint (or dispense with the appointment of) the auditor. In practice, and as permitted by statute, narrowly held corporations often dispense with an annual meeting in favor of signed resolution of all of the shareholders. The failure to hold annual resolutions, or obtain written resolutions in lieu, can lead to legal action from disgruntled shareholders.
The practice of holding annual meetings (or resolutions in lieu) also tends to ensure that corporate matters requiring attention are addressed, such as share transfers, changes to directors, and address changes, which if left unaddressed could become significant problems.
An effective method of ensuring good “corporate hygiene” is for the corporation to instruct its accounting advisors to provide legal counsel with an annual letter of instructions to document applicable financial matters.
It is not uncommon that a new client brings us a minute book that has not been properly organized, or that has not been updated for many years. It is not a cause for embarrassment. We strongly encourage that the minute books be updated before an issue arises, such as a CRA audit.
My husband and I are the sole shareholders and directors of an incorporated retail business. We have been quite successful and are generating cash excess to business requirements. We do not want to pay the cash out to ourselves now, and pay high rates of tax, but at the same time this cash is a significant part of a retirement fund. We have no creditors, other than trade creditors payable in the ordinary course. How do we protect this cash for our retirement?
You are asking a good question. In the event of an unexpected economic downturn or legal claim against your active business corporation, the excess cash generated in the business could be exposed to potential creditors. Once the liability is crystalized, it may be too late to take action that will protect the cash. You have also correctly identified that the simplest solution –payment of the cash out to yourselves – attracts undesirable tax consequences.
A cost efficient solution is the creation of a holding corporation. The holding corporation structure, when designed properly, allows excess money from your active business corporation to be paid by dividend to the holding corporation, tax free. The holding corporation is a separate legal entity, and is generally insulated from claims against your active business corporation.
Care is required that the desired tax treatment is achieved in the structuring of the holding corporation. There are other financial planning considerations, such as ensuring the availability of the lifetime capital gains exemption, which must be addressed by the new structure. This type of corporate structuring may also be implemented as part of a broader strategy for business succession and included as part of your estate planning.
I run a small business and I have several small contracts that I am currently in the process of negotiating. Are these worth bringing to a Lawyer for review?
Depending on the type of contract, there are a number of areas a Lawyer’s expertise can provide guidance, including contracts relating to employment or contractor relationships, borrowing and secured transactions, equipment leases, and other commercial agreements. Simply because a document is short, this does not mean there aren’t important clauses or terms that require careful consideration.
Contracts often contain important clauses relating to the limitation of liability, indemnification, and the waiver of important legal rights. Such clauses can have legal and financial implications for you or your business down the road. Understanding these implications is crucial and one of the services a Lawyer can provide.
A Lawyer can meet with you for a short consultation in order to review your contractual document and answer any questions you might have. By communicating to the Lawyer your expectations of the proposed contract, a Lawyer can work with you to achieve your goals as well as highlight and help you understand risks and liabilities that you or your business may be taking on as part of the contract.
If you have some questions about a contract and feel you may benefit from meeting with a Lawyer call and ask to set up a meeting.