How can members of an Ontario not-for-profit ensure that the directors and officers act in the corporation's best interests under ONCA?

Officers and directors are obligated under the Ontario Not-for-Profit Corporations Act (ONCA) to prioritize the corporation's best interests.

Members have various ways to ensure proper management supervision and compliance with duties. For example, members can request financial statements before an annual meeting and express disagreement regarding fundamental changes.

If a non-profit organization is not classified as a public benefit corporation, members can request the corporation's repurchase of any financial interest. Additionally, members can remove a director through an ordinary resolution at a special meeting and seek a compliance order from the court to compel officers and directors to follow ONCA and the corporation's articles and by-laws.

Members also have the option to petition the court for an order to dissolve the corporation or initiate an inquiry into its operations.

Furthermore, members hold the authority to represent the corporation or intervene in legal proceedings where the corporation is involved, a legal action known as a derivative action—this exclusion applies only to religious corporations. These measures empower members to protect the interests of the not-for-profit entity and safeguard the integrity of corporate governance.

Understanding the Legal Framework Under ONCA

To ensure directors and officers act in the corporation's best interests, we need to understand the laws that govern Ontario's not-for-profits. ONCA outlines the main rules, requirements, and types of not-for-profit corporations under Ontario law.

Key Provisions of the Ontario Not-for-Profit Corporations Act

ONCA sets duties for directors and officers to act honestly, in good faith, and in the corporation’s best interests. They must put the organization’s goals and members above personal interests.

Members can oversee how the corporation is managed. We can ask for financial statements before meetings and vote on major changes.

Members may remove directors by resolution at special meetings. The Act allows us to take legal action if directors fail their duties, including applying to court to enforce compliance or dissolve the corporation in serious cases.

Transition from the Corporations Act to ONCA

ONCA replaced the Ontario Corporations Act (OCA) on October 19, 2021. This change modernized the rules for not-for-profits in Ontario, improving transparency and accountability.

ONCA gives members stronger rights to call meetings and propose changes. It also requires updated bylaws to reflect new governance standards.

Not-for-profits incorporated under the OCA had to comply with ONCA by October 18, 2024, or risk losing legal protection. This ensures all provincially incorporated not-for-profits follow a consistent legal framework.

Types of Ontario Not-for-Profit Corporations

ONCA applies mostly to Ontario not-for-profit corporations incorporated under provincial law. These include societies, clubs, and other groups without share capital.

Public benefit corporations are a special category under ONCA. They must operate for specific public benefits and follow stricter financial reporting rules.

Federal non-profits operating in Ontario follow the federal Canada Not-for-profit Corporations Act. It is important to know which rules apply based on the corporation’s incorporation.

Why does ONCA require a not-for-profit organization to provide information about the directors at members' request? What should that info look like? What if the director doesn’t want that information shared? What’s the minimum that needs to be shared?

ONCA requires not-for-profits to share information about directors to promote transparency and accountability. This helps members ensure directors and officers act in the corporation’s best interests.

Access to this information builds trust and supports good governance. The information should include the director’s name, address, and position within the corporation.

This allows members to know who is responsible for decision-making and how to contact them. The information must be accurate and up to date.

If a director does not want their information shared, the corporation may consider privacy concerns. However, ONCA allows only limited restrictions, and standard details like name and address should still be shared unless there is a strong reason not to.

At minimum, we must provide:

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Members have a right to this basic information. Boards cannot refuse or hide this info without valid cause under ONCA.

Core Duties and Fiduciary Responsibilities of Directors and Officers

Directors and officers in an Ontario not-for-profit must act carefully, honestly, and in the corporation's best interest. Their roles require attention to how they manage the organization, avoid conflicts, and act with loyalty.

These responsibilities protect both the corporation and its members.

Duty of Care and Skill

We expect directors and officers to act with reasonable care, diligence, and skill. This means making informed decisions and understanding the corporation's activities.

They must stay aware of financial and legal matters affecting the organization. ONCA requires that they perform their duties as a reasonably careful person would in similar circumstances.

Failure to meet this duty could lead to liability if harm results. Regular attendance at meetings and careful review of records are part of this responsibility.

Duty of Loyalty and Good Faith

Directors and officers must put the corporation's interests ahead of personal gain or outside influences. Acting in good faith means honestly trying to benefit the corporation and not using their position for personal advantage.

Good faith also means being transparent and open in decisions. We trust directors and officers to avoid situations where their personal interests conflict with corporate duties.

ONCA enforces this by requiring disclosure when conflicts arise.

Fiduciary Duty and Conflict of Interest

Fiduciary duty means directors and officers must act honestly and with loyalty to the corporation. When conflicts of interest occur, they must report them.

Disclosure allows the corporation to manage conflicts fairly. Directors and officers cannot profit from their position beyond what the corporation’s bylaws allow.

Under ONCA, failing to disclose conflicts or acting against the corporation’s interest can cause personal liability. We rely on directors and officers to follow these rules to protect the not-for-profit’s reputation and assets.

Member Rights and Oversight Mechanisms

We have tools to oversee how directors and officers run our Ontario not-for-profit corporation. These include rights to review financial details, voting powers, special resolutions, and legal steps if the corporation is not properly managed.

Access to Corporate Records

We can request to see the corporation’s financial statements and key records before important meetings. This right helps us check if directors and officers are acting honestly and responsibly.

ONCA requires that financial reports be available to members if they ask. Having this information before annual meetings ensures transparency.

Our access includes documents like budgets, audits, and meeting minutes. If records are incomplete or withheld, we may use court processes to enforce this right.

This access helps protect the corporation’s assets and integrity.

Voting Rights and Membership Classes

Members have voting rights to influence the corporation’s direction. Different classes of membership may exist, with specific rights attached.

We need to know which class we belong to and what voting power we have. Under ONCA, votes decide important changes such as by-law amendments or appointment and removal of directors.

Participation in these votes is a key way to hold leadership accountable. The corporation’s bylaws should clearly state voting rules and membership categories.

This clarity prevents confusion about who can decide on critical issues.

Initiating Extraordinary Resolutions

When urgent or major changes are needed, we can call for extraordinary resolutions. These are special votes at meetings arranged for big decisions.

If we oppose a major change like selling assets or changing the corporation’s purpose, we can start this process. ONCA lets us require a special meeting by gathering enough member support.

This process strengthens our ability to challenge or approve key moves by the board. We must follow proper notice and procedure for these meetings to be valid.

Court Remedies and Derivative Actions

If directors or officers break their duties or ignore ONCA rules, we can ask the court to step in. This includes asking for orders to make the corporation follow the law and its own rules.

We may also start derivative actions, where members pursue legal claims on behalf of the corporation against wrongdoers. This protects the corporation’s interests when leadership fails.

Going to court can even lead to dissolving the corporation if it is not functioning properly. These legal tools help us maintain governance standards and corporate health.

By using these rights and oversight tools, we keep our not-for-profit true to its mission and governed fairly under ONCA.

Ensuring Strong Governance Through Governing Documents

To keep the corporation on track, we rely on clear, well-crafted governing documents. These set the foundation for how the organization operates and how members and directors interact.

They also guide how changes are made to keep the corporation aligned with ONCA rules.

Articles of Incorporation and Letters Patent

The articles of incorporation (sometimes called letters patent) are the official documents that create the not-for-profit corporation. They state the corporation’s purpose, type, and often include membership details.

These documents give legal status and define our work’s scope. They must clearly outline who can be members, how directors are appointed, and the board’s powers.

These details help protect us by defining key roles and limits under ONCA. If there are errors or outdated details, we must update these documents promptly to avoid problems.

Role of By-Laws in Setting Expectations

Our by-laws are the rulebook for day-to-day governance. They fill in details missing from the articles or letters patent.

By-laws set out how meetings run, voting rules, director duties, and conflict of interest policies. By defining roles and processes, by-laws help ensure directors and officers act properly.

Members know what to expect from leadership and how to raise concerns or vote on important issues. By-laws also promote transparency and accountability, which keep governance strong and aligned with ONCA.

Amendments and Filing Requirements

When changes are needed to articles or by-laws, we must follow proper procedures under ONCA. This usually means a special vote by members or directors and filing amended documents with the government.

For articles of amendment, we file requests to update official incorporation details, like a name change or purpose modification.

We must file amendments quickly to avoid compliance issues. Keeping our governing documents current ensures they match how we operate and meet all legal requirements.

Timely amendments show our commitment to strong and transparent governance.

Managing Accountability: Financial Review and Reporting

Accountability in financial matters helps us ensure directors and officers act properly. We must understand how financial statements, audits, and special rules for certain corporations work under ONCA.

Meeting these requirements protects our interests as members.

Financial Statements and Annual Reporting

We receive financial statements annually, showing the corporation’s financial health. Under ONCA, directors must provide these statements to members at least once a year.

Members can request these documents before meetings to review the corporation’s finances. Often, a summary report is shared in an annual report instead of full statements at meetings.

These statements must follow certain standards to ensure transparency. This process helps members check that money is managed properly.

Review Engagements and Audits

Our corporation’s financial size determines if an audit or review engagement is needed. Small corporations with lower revenue may be exempt from formal audits.

Review engagements provide a moderate level of assurance and cost less than full audits. Audits involve a detailed examination by a licensed auditor and give higher assurance.

ONCA lets some corporations waive audits if they meet conditions and members agree. This keeps things efficient while providing enough oversight.

Special Requirements for Public Benefit Corporations

Public benefit corporations face stricter rules under ONCA.

They must undergo financial audits or review engagements regardless of size.

These corporations serve the public interest and require higher transparency.

The rules protect public trust by ensuring accurate financial reporting.

As members, we have the right to access these detailed reports.

We can hold directors accountable for the corporation’s financial integrity.

Risk Management and Protection of Directors and Officers

We must protect directors and officers while holding them accountable.

This requires clear policies on risk exposure and close attention to legal requirements.

Proper safeguards reduce personal liability.

They also support strong governance.

Indemnification and Insurance

Our corporation’s bylaws should include indemnification clauses.

These clauses protect directors and officers from legal costs and damages when they act in good faith within their duties.

Indemnification is critical when allegations arise, even if there is no wrongdoing.

We also need Directors’ and Officers’ (D&O) liability insurance.

This insurance covers claims related to breaches of duty, mismanagement, or errors.

It can pay for defence costs, settlements, and judgments not covered by indemnification.

Indemnification and insurance together provide a financial safety net.

Provincial laws, such as the Income Tax Act, can hold directors personally liable for unpaid taxes or payroll remittances.

These measures help mitigate risks from the Canada Revenue Agency or other legal claims.

Due Diligence and Legal Compliance

We must actively pursue due diligence.

Directors need to stay informed about the corporation’s activities and financial situation.

They should seek professional advice when unsure.

Keeping clear records of decisions and meetings is important.

Legal compliance means following ONCA and other relevant laws.

This includes timely filing of reports and maintaining accurate financial documents.

We must also obey employment and environmental laws.

Good compliance protects both the corporation and individuals.

Due diligence is the best defence if questions of liability arise from regulators or members.

Limiting Personal Liability

We should adopt practices that reduce personal risk for directors and officers.

This includes avoiding conflicts of interest and strictly following fiduciary duties.

Ontario laws allow directors personal liability in certain cases, like unpaid employee wages or taxes reported to the Canada Revenue Agency.

Understanding these risks helps us create policies to reduce exposure, such as regular audits and clear financial oversight.

We can also limit liability by approving indemnification agreements and maintaining robust insurance.

If directors act with care, honesty, and skill, their personal risk remains much lower, even during difficult times.

Considerations for Charities and Commercial Activities

We must balance the corporation’s charitable goals with any commercial actions.

Staying compliant with tax laws and managing commercial activities that support our mission protects the corporation’s status and members' interests.

Compliance with the Income Tax Act and CRA

Charities under ONCA must follow the Income Tax Act and rules set by the Canada Revenue Agency (CRA).

All income, including from commercial activities, must support our charitable purposes.

Failure to comply can lead to penalties or loss of charitable status.

We cannot operate to benefit members or directors financially.

Our financial reporting must clearly separate charitable activities from commercial ones.

We need to show that profits are reinvested into our mission.

It is essential to stay updated with CRA guidelines.

We should regularly review our activities to confirm they meet the criteria for carrying on business without risking our tax-exempt status.

Managing Ancillary Commercial Purposes

The ONCA allows us to engage in some commercial activities if they support our main goals.

These commercial activities must be secondary to our charitable purposes.

We need clear policies to ensure commercial activities do not overshadow the charity’s mission.

Selling merchandise or offering fee-based services tied to our objectives is generally acceptable.

It is important to document how these activities relate to the corporation’s purpose.

Tracking their financial impact helps us show that any commercial gain furthers the charity’s work and not private benefit.

Conclusion

We play a key role in ensuring directors and officers follow ONCA rules and act in the corporation’s best interests.

By staying informed and requesting financial information, we help protect the organization's integrity.

Using legal tools available to members also supports good governance.

Taking action, such as calling meetings or seeking court orders when needed, empowers us to hold leadership accountable.

This active involvement safeguards the not-for-profit’s goals and strengthens accountability to members.

If you need guidance on ONCA requirements or support in protecting your interests as a member, we invite you to contact B.I.G. Charity Law Group. 

Our experienced team is ready to help you maintain strong, transparent, and compliant nonprofit boards. Reach out to us at dov.goldberg@charitylawgroup.ca, call us at 416-488-5888, or visit CharityLawGroup.ca to learn more about how we can support your organization's governance needs.

Frequently Asked Questions

We want to help our members understand how not-for-profit corporations operate under Ontario law.

This includes rules for directors and officers, management of the corporation, and key differences between types of organizations.

We also cover how taxation applies to these groups in Ontario.

What is the Ontario's Not-for-Profit Corporations Act 2010 (ONCA)?

The ONCA is the main law that governs not-for-profit corporations in Ontario.

It sets out rules for establishing, running, and managing these corporations in a clear, modern way.

It came into effect in October 2021 and replaces older laws.

This ensures better protections and accountability for members and the public.

What are the responsibilities of directors on a not-for-profit corporation in Ontario?

Directors must always act in the best interests of the corporation.

They must follow the ONCA, the corporation’s by-laws, and act honestly and with care.

Members have rights to ask for financial reports and question decisions.

They can also remove a director if that person is not acting properly.

How many officers does a corporation have to have according to Ontario law?

The ONCA requires a corporation to have at least three officers: a president, a secretary, and a treasurer.

Additional officers can be appointed as needed, depending on the corporation's size and complexity.

How does a not-for-profit work in Ontario?

A not-for-profit corporate structure allows a group to carry out activities without distributing profits to members.

Any income must be used to support the corporation’s purposes, which are usually charitable or community focused.

What is the difference between a charity and a not-for-profit organization in Ontario?

Charities must register with the Canada Revenue Agency and focus on specific charitable purposes.

Not-for-profits may serve similar goals but do not have to register as charities and might not issue tax receipts for donations.

Do not for profits pay taxes in Ontario?

Most not-for-profit corporations do not pay income tax if they use the money to support their mission.

If they earn unrelated business income, they might need to pay taxes.

Charities get extra tax exemptions under federal rules.