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Canada Not-For-Profit Corporations Act
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Canada Not-For-Profit
Corporations Act

Alberta Government

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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.

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