I lead a federally incorporated nonprofit. What I should be doing now to prepare for the Canadian Nonprofit Corporations Act (CNCA) coming into effect?
Please note I’m not a lawyer and you’ve asked about a legal matter. Even though the column was reviewed by a lawyer, it should not be taken as legal advice.
All federally incorporated nonprofits must replace their letters patent and bylaws with new charter documents. This involves submitting articles of continuance to obtain a Certificate of Continuance and creating, approving and filing new bylaws that comply with the CNCA. These documents require member approval (two-thirds, not a simple majority) before submission, and all this MUST happen by October 17, 2014. Once you have the Certificate of Continuance, you start conducting your business under the new CNCA.
Without that, your organization will be dissolved. And if you get a continuance but don’t write new bylaws that comply with the Act, the default bylaws apply (perhaps even without your knowledge). These may not suit your organization’s history or culture at all. You truly do not want to be in this position, or have to make rushed decisions just before the deadline.
Where to start?
Many, many areas of your current bylaws, letters patent, governance structure and practices may be affected. Some changes will be serious issues in some organizations and not affect others. But each organization is likely to identify areas that could cause major disruption if not properly addressed up-front.
Giving voting rights or even a nonvoting membership to everyone who donates $10, for example, may have seemed harmless when hardly any donors showed up at the Annual General Meeting. But the new law puts more emphasis on the right to vote for those who cannot attend, and it’s much easier to e-vote, mail in a ballot or give a proxy than attend a meeting in person. And non-voting membership classes may become quite problematic as the new law gives them a vote in some situations. Hold a leadership discussion on membership practices. This is just one example area.
Organizations should review their entire governance structure and processes before asking a lawyer to write their new bylaws. Many have already completed such reviews since the new act was introduced. If yours has not, and you need to “sell” the idea internally, here are four key reasons:
- Many organizations don’t follow their current bylaws and some organizations aren't even aware that they don't. How will your lawyer know which aspects of your current bylaws you want continued and which not?
- If you have not updated your governance to reflect any of the current thinking about wise governance practices, the board should want to make some informed choices before enshrining old practices in new bylaws.
- Depending on your membership structure, bylaw changes may be more difficult or even impossible after the new act applies.
- Most importantly, having the best possible governance structure and practices will increase mission achievement. Your community deserves such leadership from your organization.
How is governance reviewed?
A governance review should be led by someone who is:
- Fully objective, without a personal stake in the outcome or any reason to be defensive
- Knowledgable about governance in numerous nonprofit organizations
- Current in wise thinking about nonprofit governance (e.g., no talk about one-size-fits-all models)
Someone recently recruited to your board who has these qualifications may be willing to lead a review while they still have fresh eyes. Otherwise, you need an external volunteer, consultant or lawyer. Make sure the focus is on your governance, not on legal documents, problems with your funders or complaints about your regulator! I’ve seen all of these, and they were not helpful to the organization that commissioned them. They wasted a lot of leadership time, and you don’t have that kind of time remaining.
You will need a small, very senior group to work with the lead reviewer. If you already have a Governance or Board Development Committee, the review likely falls within its Terms of Reference. If not, start a Governance Task Force led by a board member and including the Executive Director. That group will need to confirm the processes, such as which stakeholders to consult, and give feedback to the reviewer as he or she:
- Reviews internal documents relevant to governance, including in camera minutes.
- Consults stakeholders.
- Does comparisons to respected peer organizations (optional).
- Analyzes findings, develops options for discussion and makes recommendations.
- Facilitates dialogues with the committee and board and supports approval of chosen approaches and changes.
- Finalizes a report that includes advice to the person who will draft the new bylaws.
Writing the bylaws
I very strongly recommend that you engage a lawyer who specializes in nonprofit law and has developed a template specific to the new federal law and regulation. The template will have standard wording options depending on your choices, but still allow for customization if your organization has unique requirements.
Templates from good nonprofit lawyers will be far more robust than the one on the federal site, where you will find some applicable choices but other “write your own” options that don’t give much guidance. And such templates can save many hours of legal time compared to hiring a lawyer who has to write one just for you, or review one written by a volunteer who didn’t use a template. Indeed, even if you like your current bylaws, using a template from a lawyer specializing in nonprofits will save you money because the lawyer will have worked through the details without cost to you.
Depending on the governance decisions you have made, your lawyer may also recommend that you change from federal to provincial incorporation. Ask whether you should.
What if we have no money?
I know that some all-volunteer organizations will have little choice but to use the federal Bylaw Builder, cross their fingers and hope for the best. Don’t do that until you have eliminated these options:
- Approach key funders for one-time funding; many will understand the importance of getting your legal framework right
- See if an umbrella organization for your sub-sector is supporting this activity by engaging a lawyer to develop a template customized for your type of nonprofit, or to work collectively with members. Most will at least put out guidance documents and hold education sessions, often through webinars
- See if an umbrella organization in your community, such as the United Way or a community foundation, is supporting collective work on new bylaws
- Borrow samples from better funded but very similar organizations. Customize; don’t just change the name!
Regardless, attend education sessions being offered by many law firms with a nonprofit group focus, and subscribe to their free newsletters. If you attend a sector conference, ask that there be sessions on the new law, again by a lawyer or group of lawyers specializing in this field. The law is very complex. You need some people in your organization who can ask the consultant and lawyer the right questions.
What’s the timing?
You don’t want to rush or take undue risks, do you? Time requirements will vary depending on your board schedule and leadership workload, but overall I suggest you make sure you have the continuance document and new bylaws at an Annual General Meeting that is NOT the last meeting of members before the deadline. I’ve seen members turn down new bylaws at an Annual General Meeting.
You will need time for:
- A governance review
- Bylaw writing and board consideration
- Multiple messages to your community and opportunities for members to comment and ask questions (it’s helpful to post the draft bylaws on your web site)
- Revisions based on member comments and board approval
- Formal communication of the bylaws as approved by the board with your AGM agenda; your current bylaws will set out how many days ahead that must happen
- Approval at the Members Meeting
- Filing of documents with the federal government
Starting this less than 18 months before the deadline is simply not wise!
Note: Some provincial laws governing nonprofits are changing too. And governance should be reviewed every five years or so anyway, as governance thinking changes and so does your organization and your community. Don’t wait until the clock is ticking.
In Ontario the new act is planned to come into effect January 1, 2013 with some provisions effective immediately, so the need to act is very urgent. Unfortunately, the law is far from clear, and as of August 27, 2012 there are no draft regulations or government resources yet. Consult your governance advisor and lawyer now, but expect some disruption and likely at least two rounds of reviewing your bylaws.
Note: This article was written with the assistance of Robert B. Hayhoe, Partner, Miller Thomson LLP.
Since 1992, Jane Garthson has dedicated her consulting and training business to creating better futures for our communities and organizations through values-based leadership. She is a respected international voice on governance, strategic thinking and ethics. Jane can be reached at firstname.lastname@example.org.
Because nonprofit organizations are formed to do good does not mean they are always good in their own practices. Send us your ethical questions dealing with volunteers, staff, clients, donors, funders, sponsors, and more. Please identify yourself and your organization so we know the questions come from within the sector. No identifying information will appear in this column.
To submit a dilemma for a future column, or to comment on a previous one, please contact email@example.com. For paid professional advice about an urgent or complex situation, contact Jane directly.
Disclaimer: This article is for information purposes only. It is not intended to be legal advice. You should not act or abstain from acting based upon such information without first consulting a legal professional.
Please note: While we ensure that all links and email addresses are accurate at their publishing date, the quick-changing nature of the web means that some links to other websites and email addresses may no longer be accurate.