Page
1 |
2 | 3 |
4
Improve Financial Accountability:
Not-for-profit corporations take many different forms: some
are very large while others are quite small; some are
privately funded while others solicit donations from the
public or government. The new legislation recognizes these
differences and applies its financial reporting requirements
differently based upon an organization's annual revenues and
sources of funding.
Not-for-profit organizations would be
categorized as either a "soliciting corporation"
(corporations which solicit public donations or receive
government funding) or a "non-soliciting corporation". Low
revenue soliciting corporations, for which an audit would be
too expensive, would have the lowest requirements — a review
engagement. These organizations could resolve, with the
consent of all members, not to undertake the review
engagement. Review engagements are distinguishable from
audits in that the scope of the review is less than that of
an audit and therefore, the level of assurance provided is
somewhat lower.
Medium revenue soliciting corporations would
be required to have an audit but could resolve, with the
consent of two-thirds of its members, not to undertake an
audit but, instead, to undergo a review engagement. High
revenue soliciting corporations would be required to have an
audit conducted. Low revenue non-soliciting organizations
would be required to have a review engagement. However,
these organizations could resolve, with the consent of all
members, not to undertake the review engagement. High
revenue non-soliciting organizations would be required to
have an audit conducted. It should be noted that all
corporations can choose to have an annual audit.
The new law would also require that all
not-for-profit corporations make their financial statements
available to their members, directors and officers. They
would also have to be available to the Director appointed
under the Act, who is the government official responsible
for the administration of the Act. Moreover, soliciting
corporations would be required to file their financial
statements with the Director who would make these documents
available to the public. Disclosure of financial statements
is an important tool for ensuring that soliciting
corporations are properly managed.
Rights and Responsibilities of Directors
and Officers: One of the major shortcomings of the CCA
is that it does not outline the standard of care that
directors must meet. The new Act will have an explicit
standard of care, which clarifies the parameters of a
director's responsibilities and reduces uncertainty. The new
Act will adopt a modern standard of care as is contained in
the Canada Business Corporations Act and other modern
corporate law statutes. Under the new standard of care
directors will have to act honestly and in good faith with a
view to the best interests of the corporation; exercise the
care, diligence and skill that a reasonably prudent person
would exercise in comparable circumstances; and comply with
the Act, articles, by-laws and any unanimous member
agreements.
The new standard of care provides clear
rules for the protection of directors from liability. When
directors meet the standard of care, they will be protected
from liability by a "due diligence" defence. The standard of
care that directors must meet and the due diligence defence
are measures that will reduce uncertainty for directors
regarding their personal liability. This should help attract
qualified individuals to act as directors of not-for-profit
organizations.
Enhancement and Protection of Members'
Rights: The new Act will also enhance and protect member
rights. By doing so, it will promote active membership and
encourage members to monitor the directors' activities.
Members will have the power to enforce their rights and
oversee the activities of their organizations. They will
have the power to access corporate records (most
importantly, the financial statements); access membership
lists (subject to certain restrictions); request a meeting
and to make proposals; use the oppression remedy and the
compliance order to protect their rights; and use the
derivative action remedy to enforce the rights of the
corporation.
The oppression remedy allows members to seek
relief from a court if they believe their rights have been
"oppressed". A derivative action allows members to launch a
suit, in the name of the corporation itself, if they believe
that directors or officers of the corporation have acted
improperly. The oppression remedy and derivative action
would not be available to a member if the action in question
was, in the view of the court, based upon a tenet of faith
held by the members of the corporation. This means that a
member of a religious organization would face restrictions
on his or her ability to use the courts to overturn an
action taken by a corporation on the basis of its religious
doctrines or the tenents of its faith.
[<<back]
[next>>]
|