Can Members and Key Stakeholders Sue the Board on Behalf of a Nonprofit Under ONCA?

Members and key stakeholders of nonprofits in Ontario have new rights under the Ontario Not-for-Profit Corporations Act (ONCA). They can sue the Board on behalf of the nonprofit through derivative actions and oppression remedies when they believe the Board is acting against the nonprofit’s best interests or treating them unfairly.

This legal framework protects the organisation and its members from mismanagement and unfair treatment.

Derivative actions let a member or director take legal steps if the Board harms the nonprofit. Oppression remedies address situations where members feel seriously unfairly treated.

These tools increase accountability but require courts to agree the lawsuit serves the nonprofit’s interests.

Understanding these rights is important for anyone involved in nonprofit governance. Knowing when and how members can take action helps keep nonprofits transparent and better managed.

Understanding ONCA and Nonprofit Governance

The Ontario Not-for-Profit Corporations Act (ONCA) sets the legal framework for how nonprofits operate in Ontario. It aims to improve transparency and accountability in governance.

The Act covers various types of nonprofit entities. It defines rules that boards and members must follow to ensure proper management and protection of interests.

Key Features of ONCA

ONCA replaced the older Ontario Corporations Act in 2021. It introduced clearer rules for governance, reporting, and stakeholder rights.

The Act requires nonprofits to have written by-laws and sets standards for board duties. These include fiduciary responsibility and conflict of interest rules.

It also provides tools like derivative actions and oppression remedies that allow members or directors to hold Boards accountable. The Act demands transparency through accessible financial records and procedural fairness during decision-making.

Simplifying incorporation and updating terms help modernize nonprofit management in Ontario.

Types of Nonprofit Entities Covered

ONCA primarily applies to not-for-profit corporations incorporated under Ontario law. This includes a wide range of organizations, such as clubs, associations, and public benefit corporations.

Charities are generally governed by separate federal laws but may still fall under ONCA’s rules if incorporated as Ontario non-profits. ONCA focuses on entities without share capital, meaning they do not distribute profits to members.

The Act regulates the relationship between members, directors, and the organization itself. It ensures that all nonprofit activities serve their stated purposes and community interests.

Public Benefit Corporations Under ONCA

Public Benefit Corporations (PBCs) are a specific type of nonprofit under ONCA. These organizations exist to provide a community or public benefit rather than private gain.

Unlike regular nonprofits, PBCs have additional rules to ensure their activities align with their stated charitable or public objectives. They must maintain a clear mandate focused on the public good and are often subject to closer scrutiny.

ONCA provides mechanisms to hold their boards accountable if governance fails or if members feel their interests are ignored. PBCs play a key role in sectors like health, education, and social services in Ontario’s nonprofit landscape.

Legal Standing to Sue the Board Under ONCA

Members and key stakeholders in a nonprofit have specific rights to bring legal actions when the board’s conduct harms the organisation. These rights depend on their status within the nonprofit and the nature of the claim.

Understanding who can sue and how claims are structured is essential for proper governance and accountability.

Who Qualifies as a Member or Key Stakeholder

Under ONCA, a member is someone recognised in the nonprofit’s governing documents as having membership rights, like attending member meetings and voting. Membership can have different classes, each with specific rights determined by the articles or by-laws.

Not all stakeholders are formal members. Key stakeholders include directors or others with significant roles or interests who may not be members but are directly affected by board decisions.

Members exercise influence mainly through voting and proposals during meetings. They do not attend board meetings.

To have standing to sue, individuals must usually be formal members or directors, or meet criteria showing direct harm or unfair treatment. Members gain their powers from the nonprofit’s rules, including rights over membership records and participation in governance.

Derivative Actions Explained

Derivative actions let members or directors sue the board to protect the nonprofit itself, not for personal benefit. This happens if the board mismanages funds or acts against the organisation’s best interests.

The process requires a court’s approval to ensure the claim benefits the nonprofit before proceeding. If the court dismisses the suit, it means the action doesn’t serve the nonprofit’s goals.

Derivative actions act as a check on board power. They support transparency and discourage misconduct by allowing internal parties to hold the board accountable.

Direct Versus Indirect Claims

Claims can be direct or indirect. Direct claims are made by members or directors when they suffer personal harm, such as being excluded from member meetings or unfairly denied voting rights.

Indirect claims affect the organisation itself, calling for the board to address wrongdoing hurting the nonprofit’s interests. Derivative actions fall into this category.

Direct claims focus on individual legal rights, while derivative claims focus on protecting the nonprofit’s assets and reputation. Both types shape how members and stakeholders influence governance and ensure accountability.

Rights and Responsibilities of Members

Members of a nonprofit under ONCA have specific rights and duties that affect how the organisation operates. These include voting in meetings, accessing important corporate documents, and having a say in calling meetings.

Understanding these helps members protect their interests and participate effectively.

Voting and Quorum Requirements

Members with voting rights can influence key decisions by voting at meetings. Every nonprofit must have at least one class of members with voting privileges.

The bylaws set out how votes are counted and the quorum needed to hold valid meetings. Quorum is the minimum number of members required to conduct official business.

Without quorum, decisions made at a meeting may be invalid. Quorum rules vary by organisation but usually require a majority or a set percentage of voting members.

Members vote on matters like electing directors, approving financial statements, and changes to bylaws. Voting can occur in person, by proxy, or sometimes electronically if the nonprofit allows it.

These rules ensure members can actively participate in governance.

Access to Corporate Records and Minutes

Members have the right to inspect certain corporate records, including the membership list and meeting minutes. Access helps members verify the organisation’s operations and governance decisions.

Nonprofits must provide this information unless restricted by the bylaws or privacy laws. The membership list typically includes names and addresses of members.

Some bylaws may require additional details. If the Board refuses access, members can apply to the court for an order to inspect records.

Minutes of meetings detail decisions and discussions held by members and directors. Reviewing minutes helps members stay informed and hold the Board accountable.

Access is usually granted upon request and must be reasonable.

Proposing and Requisitioning Meetings

Members often have the right to propose ideas or motions at meetings. These proposals allow members to bring issues to the attention of the Board and other members.

The process for submitting proposals is normally set out in the bylaws. In some cases, members can requisition a special meeting.

This means they formally request that a meeting be called to discuss specific matters. The number or percentage of members needed to make this request is defined by the bylaws or ONCA.

Requisitioning meetings empowers members to take direct action if they believe urgent decisions are required. The Board must respond to valid requisitions within a set timeframe.

This ensures members’ voices are heard on important issues.

Grounds and Processes for Suing the Board

Members and key stakeholders can challenge the board when there are concerns about how the nonprofit is managed or governed. This includes breaches of legal duties or unfair treatment.

The process often involves proving specific failures and seeking clear legal remedies.

Fiduciary Duties and Alleged Breaches

The board of directors owes fiduciary duties to the nonprofit. These include acting honestly, in good faith, and in the best interest of the organisation.

Breaches happen when directors misuse funds, fail to provide accurate financial statements, ignore government filing requirements, or act beyond their authority under the articles or letters patent. Members or directors may sue the board if they believe these duties were broken.

The court reviews if the board's actions caused harm or risk to the nonprofit. Derivative actions allow suing on behalf of the nonprofit, not for personal gain, to correct mismanagement.

Evidence often involves financial records, public disclosures, or documents showing improper decisions.

Typical Legal Remedies Available

Legal remedies under ONCA include derivative actions and oppression remedies. Derivative actions focus on fixing wrongs done to the nonprofit, such as recovering lost funds or stopping harmful board practices.

Oppression remedies address cases where members or directors face unfair treatment by the board, like exclusion from decision-making. Courts may order the board to change practices, remove certain directors, or compensate the nonprofit.

The process requires proving serious unfairness or breach of duties. Courts consider the overall impact on governance and operations before granting relief.

Impact of Bylaws and Membership Structures

Bylaws and membership structures shape how a nonprofit operates and responds to legal actions under ONCA. They determine who can sue the Board and how members participate in governance.

Properly updating bylaws and understanding membership roles are key for clear accountability and smooth transitions.

Updating Bylaws for ONCA Compliance

Nonprofits incorporated before ONCA took effect in 2021 need to review and update their bylaws. ONCA introduced new rules on membership, meetings, and director elections that may conflict with old bylaws.

Changes include defining member rights clearly, setting procedures for calling and holding meetings, and establishing how members can take legal action, such as derivative lawsuits and oppression claims.

Nonprofits should align their bylaws with ONCA’s provisions. This helps reduce disputes about who can sue the Board and under what conditions.

Failing to update bylaws can cause confusion or weaken members’ legal powers.

Role of Bylaw Basics and CLEO's Bylaw Builder

Bylaw Basics offers clear guidance on creating effective bylaws under ONCA. It highlights the importance of setting out membership classes, rights, and processes for member discipline or termination.

CLEO’s Bylaw Builder is a practical tool that helps nonprofits draft or update bylaws. It walks users through necessary elements step-by-step, ensuring compliance with ONCA and improving governance clarity.

These resources support nonprofits transitioning to ONCA. They help ensure bylaws reflect who holds decision-making power and how members can protect the nonprofit’s interests through legal actions if needed.

Practical Considerations for Nonprofits and Their Stakeholders

Nonprofits and their stakeholders must take careful steps to protect their interests under the Ontario Not-for-Profit Corporations Act (ONCA). This includes obtaining expert legal advice and keeping thorough records to support any potential legal actions or governance decisions.

Proper preparation helps prevent disputes and ensures smooth operations.

Choosing the Right Legal Support

Selecting a lawyer experienced in nonprofit law is essential. The right legal support can guide members and directors through derivative actions or oppression remedy claims.

Using a lawyer directory focused on charity or nonprofit law helps find professionals with relevant expertise. Legal counsel assists with understanding complex ONCA provisions and filing proper court documents.

Before hiring, nonprofits should confirm the lawyer’s experience with incorporating under ONCA and familiarity with governance issues like self-perpetuating boards and government filings.

A knowledgeable lawyer can also advise on the organization’s structure and recommend if incorporation under ONCA is appropriate based on goals and stakeholder needs. Early consultation avoids costly errors later.

Preparing and Maintaining Proper Documentation

Accurate records and minutes are crucial for supporting any legal action against the board. Nonprofits must regularly update meeting minutes, financial records, and other governance documents that show decision-making and compliance efforts.

Clear records help prove if the board acted improperly or members’ rights were oppressed. They also support transparency and good governance practices.

New nonprofits should set up strong documentation processes from the start. This includes registering correctly, maintaining filings with government, and carefully naming the nonprofit to avoid confusion.

Well-kept records reduce risk and improve confidence among stakeholders over time.

Conclusion

Members and key stakeholders now have clear legal tools under ONCA to hold nonprofit Boards accountable through derivative actions and oppression remedies.

These measures encourage fair governance. However, people must use them carefully to avoid unnecessary conflict and legal costs.

Success in court is possible when wrongful conduct is clear. Achieving this outcome can still be challenging.

If you have questions about how these changes affect your nonprofit, contact us at B.I.G. Charity Law Group.

We offer advice on navigating ONCA's legal framework to protect the interests of members and stakeholders.

Reach us at dov.goldberg@charitylawgroup.ca or call 416-488-5888.

You can also schedule a FREE consultation at CharityLawGroup.ca.

This step helps you understand your rights and options with our professional guidance.

Frequently Asked Questions

Members and key stakeholders have rights to hold nonprofit boards accountable. They can take legal action under certain rules and procedures.

These rules affect who can sue, how lawsuits work, and who qualifies as a stakeholder.

Which of the following is a lawsuit brought against a key member of a company by a shareholder or group of shareholders suing on behalf of the corporation?

This lawsuit is called a derivative action.

It allows members or directors to sue the board when an issue harms the nonprofit.

The court must approve the lawsuit before it moves forward.

What are the new rules for nonprofit organizations in Ontario?

Ontario’s Not-for-Profit Corporations Act (ONCA) introduced derivative actions and oppression remedies.

These changes give members and directors ways to address board mismanagement or unfair treatment within nonprofits.

Who cannot be on the board of directors?

People who do not meet the nonprofit’s eligibility rules cannot join the board.

This often excludes those not qualified by age, residency, or those with conflicts of interest as defined in the corporation’s bylaws.

Are there specific procedural steps members must follow to sue a board under the Ontario Not-for-profit Corporations Act?

Yes, members must file a lawsuit and show the court that the action benefits the nonprofit or addresses serious unfairness.

The court reviews the claim and can dismiss it if there are not enough grounds.

Who are considered stakeholders in a nonprofit organization?

Stakeholders include members, directors, donors, volunteers, and service recipients.

They all have an interest in how the nonprofit is governed and operated.

Can a failed internal resolution process within a nonprofit lead to legal action against the board under ONCA?

Yes. If internal efforts to resolve issues fail, members or directors may take legal action using derivative actions or oppression remedies.

These legal options protect the nonprofit’s interests or address unfair treatment when other solutions do not work.