What happens under ONCA when a not-for-profit corporation looks to dissolve?

When a not-for-profit corporation in Ontario is looking to dissolve under the Ontario Not-for-Profit Corporations Act (ONCA), it is of utmost importance to meticulously follow specific steps regarding the handling of assets. This ensures that your organization remains compliant and responsible even during the dissolution process.

‍If your organization is a Public Benefit Organization (but not a charity), you are required to distribute your assets to one or more of the following:

1.  A public benefit organization that shares a similar purpose;

2.  Registered charity;

3.  Government agency or

4.  Municipality

‍It's crucial to remember that you must adhere to this distribution process, even if your articles or bylaws suggest otherwise. This clear guidance ensures that your organization's assets are distributed in a secure and legal manner.

‍The asset distribution process for charities is as follows: give your assets to a registered charity with a similar purpose. Alternatively, you can transfer them to a government agency or a municipality. Again, this applies regardless of any conflicting provisions in your articles or bylaws.

‍If your organization does not fall under the public benefit category, it's important to follow the guidelines set out in your articles. In the absence of specific instructions, the assets should be distributed among your members in a manner that respects their rights and interests within the organization.

‍If your nonprofit was incorporated before the ONCA came into effect (October 19, 2021), it's essential to review, update, and file your governing documents with the Ontario government by October 18, 2024. This proactive step ensures your organization's preparedness and compliance with the legal requirements during the transition period.

In summary, this article guides the steps a not-for-profit corporation in Ontario must take when dissolving under the Ontario Not-for-Profit Corporations Act (ONCA). It emphasizes the importance of following specific asset distribution processes to remain compliant and responsible during the dissolution process.

Understanding the Ontario Not-for-Profit Corporations Act (ONCA)

The Ontario Not-for-Profit Corporations Act (ONCA) sets the legal rules for not-for-profit corporations in Ontario.

It replaces the older Corporations Act and provides clearer guidance on governance, member rights, and financial practices.

The Act also introduces deadlines for updating governing documents and distinguishes itself from other corporate laws in the province.

Purpose and Scope of ONCA

ONCA governs not-for-profit corporations incorporated in Ontario that have no share capital.

These corporations must use any profits exclusively to support their purposes and cannot distribute profits to members, directors, or officers.

ONCA applies to both charitable and non-charitable not-for-profit organizations.

The Act creates a modern legal framework covering incorporation, governance, meetings, financial reporting, and dissolution.

It establishes duties for directors, requires conflict of interest disclosures, and allows various voting methods.

ONCA also permits not-for-profits to engage in commercial activities if those activities serve their main non-profit goals.

Transition Period and Key Deadlines

ONCA came into force on October 19, 2021.

Not-for-profit corporations governed under the older Ontario Corporations Act were given a three-year transition period to update their bylaws and letters patent.

This transition ended on October 18, 2024.

Failure to update governing documents does not dissolve a corporation or stop its operations, but some old provisions may no longer apply.

Corporations were encouraged to complete their updates before the deadline to ensure full compliance with ONCA’s requirements.

Distinction Between ONCA and Other Acts

ONCA differs from other provincial laws such as the Business Corporations Act (which governs for-profit companies) and the Co-operative Corporations Act (which applies to co-ops).

Unlike the Business Corporations Act, ONCA prohibits profit distribution to members.

ONCA also differs from the federal Canada Not-for-Profit Corporations Act, which governs federally incorporated nonprofits.

Federally incorporated organizations operating in Ontario do not have to comply with ONCA.

This distinction is important for corporations choosing their incorporation jurisdiction and understanding which rules apply to them.

Identifying Corporation Type Before Dissolution

Before dissolving, a not-for-profit corporation must determine its specific classification under ONCA.

This classification affects how assets are handled and what legal obligations apply.

Clear identification ensures compliance with ONCA’s rules on asset distribution and governance.

Public Benefit Corporations Requirements

Public benefit corporations operate to serve the community or public interest without profit.

When they dissolve, ONCA requires that their remaining assets go only to organizations with similar purposes. This includes other public benefit organizations, registered charities, government agencies, or municipalities.

The law overrides any contrary provisions in the corporation’s bylaws or articles.

This ensures assets continue serving public purposes, not private interests.

These rules protect public trust in the corporation’s mission, even after closure.

Charities Versus Non-Charities

Charities are a specific subset of public benefit organizations recognized by tax authorities.

When a charity dissolves, ONCA mandates transferring assets to a registered charity with a similar purpose.

Non-charitable public benefit organizations must direct assets toward public benefit entities or government bodies.

Both must avoid distribution that benefits individual members or private parties.

This distinction matters because charities must keep their assets aligned with charitable purposes.

Non-charities have a slightly broader range of options for asset recipients.

Non-Public Benefit Corporations

Non-public benefit corporations are those that do not primarily serve the public or charitable purposes.

Their dissolution is governed differently under ONCA.

These corporations typically follow the distribution guidelines set out in their bylaws or articles of incorporation.

If there are no clear instructions, assets are usually divided among members based on their rights and interests.

Unlike public benefit corporations, there is no requirement to transfer assets to charities or public agencies.

This distinction is key for organizations focused on private member interests or non-public activities.

Pre-Dissolution Considerations and Compliance

Before dissolving, a not-for-profit must carefully follow rules about its governing documents, member rights, and leadership duties.

Ensuring these are in order helps avoid legal problems and supports a smooth dissolution process.

Review of Articles and Bylaws

The organization must closely examine its articles of incorporation and bylaws to confirm any conditions related to dissolution.

These documents may contain specific instructions about how assets should be handled or require certain approvals before dissolving.

If the organization was incorporated before ONCA took effect (October 19, 2021), it is essential to update these documents by October 18, 2024, to align with the Act.

Failure to comply can delay or complicate dissolution.

Even if bylaws contain different steps for asset distribution, ONCA rules take precedence, particularly for public benefit organizations and charities.

The documents should also be checked for any clauses about notifying members and holding meetings related to dissolution.

Membership Structures and Voting

Membership rights and voting procedures under ONCA directly affect how dissolution decisions are made.

The organization must identify who qualifies as members and if they hold voting power on dissolution matters.

Typically, dissolution requires approval by a special resolution, meaning a two-thirds majority of voting members unless bylaws state otherwise.

Voting procedures must follow the rules in the bylaws and ONCA, including notice requirements and quorum.

If membership categories differ, the organization must determine which groups have the right to vote on dissolution.

Failing to respect membership rights risks legal challenges and invalidation of the dissolution process.

Director and Officer Obligations

Directors and officers have legal duties during dissolution.

They must act honestly, in good faith, and in the best interests of the organization throughout the process.

They are responsible for ensuring that all legal and procedural steps are followed, including preparing and filing the Articles of Dissolution with the Ontario government.

Directors must manage the proper distribution of assets according to ONCA and governing documents.

Officers should keep accurate records and communicate clearly with members and stakeholders.

They must also supervise any outstanding liabilities and contracts to avoid leaving the organization exposed to legal or financial risk.

Legal Process for Dissolving a Not-for-Profit Under ONCA

Dissolving a not-for-profit under ONCA requires clear steps involving decision-making by members and directors, submitting proper filings, and following strict rules for distributing assets.

Each part of the process ensures legal compliance and orderly closure.

Members’ and Directors’ Roles During Dissolution

The directors must first propose the dissolution and prepare a plan to wind up the corporation’s affairs.

This includes managing liabilities and settling debts. They must call a meeting of members to approve the dissolution.

Members have the power to accept or reject the dissolution plan.

Usually, a special resolution passed by a two-thirds or higher majority is required.

Directors must keep members informed about all key steps.

Throughout the process, directors continue their duties to act in the best interest of the corporation and to avoid conflicts.

They must ensure all legal obligations are met before the dissolution completes.

Filing Requirements with Ontario Business Registry

The corporation must file Articles of Dissolution with the Ontario Business Registry.

This official form signals the start of the formal dissolution process.

The filing must meet all ONCA criteria, including correct format and required signatures from directors or officers.

Any outstanding reports, fees, or updates to governing documents should be settled before filing.

Once the Articles of Dissolution are accepted, the corporation officially loses its legal status.

It must notify stakeholders and update records accordingly.

Asset Distribution Rules

Under ONCA, assets must be handled carefully during dissolution.

If the corporation is a Public Benefit Organization or charity, assets must go to another public benefit organization, a registered charity, a government agency, or a municipality.

If it is not a public benefit corporation, the distribution follows the corporation’s articles or bylaws.

Without specific directions, assets should be distributed to members fairly, respecting their rights.

These rules exist to ensure assets are used properly and legally, even after the corporation ends.

Disregarding these rules risks legal complications.

Special Dissolution Rules for Charities and Public Benefit Corporations

When a charity or public benefit corporation dissolves under ONCA, there are clear rules about how their assets must be handled.

These rules ensure assets support similar purposes or go to government or community organizations.

The law strictly controls who may receive these assets, regardless of what the organization’s bylaws might say.

Mandatory Asset Transfer for Charities

Charities must transfer their remaining assets to another registered charity with a similar purpose upon dissolution.

This ensures that charitable funds continue to serve public or specific charitable goals.

Alternatively, assets can be transferred to a government agency or a municipality.

This must happen even if the charity’s own articles or bylaws suggest other options.

This rule protects the public interest by ensuring charitable assets are not distributed to private individuals or unrelated parties.

Procedures for Public Benefit Corporations

Public benefit corporations, which are not charities but work for public good, must follow strict asset distribution rules when dissolving.

Their assets must go to one or more of these entities:

• Another public benefit organization with a similar purpose
• A registered charity
• A government agency
• A municipality

These transfers must comply with ONCA to maintain legal compliance, even if their governing documents state otherwise.

Public benefit corporations must confirm their status in the financial year they dissolve or in recent years to apply these rules.

Government and Community Recipients

Both charities and public benefit corporations can distribute assets to government bodies or municipalities.

Acceptable recipients include:

• Federal or provincial government agencies
• Municipal governments

This provision provides an alternative destination for assets if no suitable charity or public benefit organization exists.

This helps ensure assets remain within the public or community sphere and continue to benefit society in some way.

Financial and Reporting Obligations Upon Dissolution

When a not-for-profit corporation dissolves under ONCA, it must settle its finances and meet specific reporting duties.

The organization needs to prepare final financial statements, inform government bodies through proper filings, and keep records for a period after the dissolution.

Final Financial Statements

Before dissolving, the corporation must complete and approve its final financial statements.

These documents show all assets, liabilities, income, and expenses up to the dissolution date.

They must detail how any remaining assets will be distributed.

For example, assets typically go to another public benefit organization, registered charity, government agency, or municipality, depending on the corporation’s classification under ONCA.

These statements need approval by the members or board according to the organization’s by-laws.

Clear, accurate financial statements help avoid legal issues and show transparency during the winding-up process.

Reporting to Authorities

The corporation must file Articles of Dissolution with the Ontario government in the correct form and format, as required under ONCA.

It also must submit its final financial statements to the Director overseeing not-for-profit corporations.

If it is a registered charity, additional reports may be required by the Canada Revenue Agency.

Failure to meet these reporting requirements can lead to penalties, including administrative dissolution.

Timely and complete filings ensure the organization’s legal closure.

Maintaining Records After Dissolution

Even after dissolving, the corporation must maintain records for several years.

ONCA requires retaining documents like financial statements, minutes, and correspondence related to the dissolution.

Typically, records must be kept for at least six years from the date of dissolution.

These are essential in case of audits or legal inquiries after closure.

Designated officers or former directors should ensure these records remain accessible and secure during the retention period.

This practice helps uphold accountability despite the corporation no longer operating.

Post-Dissolution Considerations and Related Resources

After a not-for-profit corporation dissolves under ONCA, there are important legal steps and responsibilities to manage.

These include complying with rules about what happens to assets and records, along with where to find help and tools for the process.

Legal and Practical Consequences

When a not-for-profit dissolves under ONCA, it must properly distribute its remaining assets. Public Benefit Organizations must give assets to another public benefit group, a registered charity, government agency, or municipality.

This is mandatory, even if the organization’s governing documents say otherwise. For charities, assets must go to a similar registered charity or a government body.

If an organization is neither a public benefit group nor a charity, it follows rules in its articles about asset distribution. Failure to follow these rules can lead to legal issues, delays in finalizing the dissolution, or penalties.

The organization must also file Articles of Dissolution in the required form with the Ontario government. This formal step is necessary to end the corporation’s legal existence.

Seeking Expert Guidance

Dissolving a not-for-profit can involve complex legal obligations. It is wise for organizations to seek advice from lawyers experienced in charity and not-for-profit law to ensure full compliance with ONCA.

Professional guidance helps avoid mistakes in asset distribution and filing. Community Legal Education Ontario offers resources and clear explanations of the dissolution process.

Their materials help organizations understand the steps without legal jargon. This expert advice ensures organizations meet all deadlines and properly close their operations.

Relevant Tools and Guides

Several tools and guides assist not-for-profits during and after dissolution. The Not-for-Profit Incorporator’s Handbook provides step-by-step instructions for governance and compliance.

Community Legal Education Ontario offers practical guides tailored to the ONCA framework. These help clarify asset handling, documentation, and filing.

The Canada Not-for-Profit Corporations Act (CNCA) is relevant for federally incorporated organizations. While ONCA applies to Ontario corporations, understanding CNCA’s rules may help if a corporation operates nationally.

Using these resources helps organizations stay organized and fulfill legal duties during dissolution.

Conclusion

When a not-for-profit corporation in Ontario decides to dissolve under ONCA, following the correct steps for asset distribution is essential. Assets must be given to appropriate organizations, such as public benefit organizations, registered charities, government agencies, or municipalities.

This process ensures legal compliance and protects the organization's responsibilities. We at B.I.G. Charity Law Group are available to help guide organizations through this process. We offer expert advice to ensure dissolutions comply with ONCA rules. 

Contact us at dov.goldberg@charitylawgroup.ca or by phone at 416-488-5888. More information is available at CharityLawGroup.ca. Organizations can also schedule a free consultation with us to discuss their specific case. Taking early steps can simplify this process.

Frequently Asked Questions

Dissolving a not-for-profit in Ontario requires following legal steps, handling assets properly, and knowing the costs involved. The rules for asset distribution depend on the type of organization and its governing documents.

How to dissolve a non-profit corporation in Ontario?

The organization must hold a meeting to approve the dissolution. It must file articles of dissolution with the Ontario government.

Any outstanding debts must be paid before finalizing dissolution. The corporation must also follow specific laws that apply under ONCA.

What happens to the money when a nonprofit dissolves in Canada?

Money and assets must be given to organizations with similar purposes, registered charities, government agencies, or municipalities. If the nonprofit is a public benefit organization, it cannot distribute assets to individuals.

The rules in ONCA override conflicting articles or bylaws.

What happens when a corporation is dissolved in Canada?

Once dissolved, the corporation ceases to exist legally. It can no longer operate or enter contracts.

Its assets are distributed according to law. Past obligations must be settled, and all reports or filings completed.

How much does it cost to dissolve an Ontario corporation?

Dissolution fees vary depending on filing type and services. The basic government filing fee to dissolve a corporation is generally low but can increase with legal or professional help.

Additional costs may come from tax filings or formal audits required before dissolution.

What Happens to Assets When a Non-Profit in Ontario Closes?

Assets must be transferred to approved recipients like other public benefit organizations, charities, government agencies, or municipalities. If the nonprofit is a charity, assets must go to another registered charity or similar entity.

Articles or bylaws cannot override these requirements.

Is it normal for non-profit corporations to dissolve and go right back to being active multiple times?

It is uncommon for non-profit corporations to dissolve and then become active again multiple times. This practice is generally discouraged.

Repeated dissolutions and reactivations may raise legal and financial concerns about the organization.

Each time a non-profit becomes active, it must follow incorporation and reporting rules.