Guest post, written by Timothy J Nichols
The new BC Societies Act will come into force on November 28, 2016, replacing the current Society Act. The new Act will be more similar to the current legislation for both business companies and not-for-profit corporations in BC and other Canadian jurisdictions. The changes are significant. Most commentators agree that the upgrade is long overdue.
The following is a brief summary highlighting some of the impact of the new legislation on the many existing BC societies. There is also a discussion regarding certain steps that should be taken by every society’s principals now and in due course. This memorandum is of a general nature, is not exhaustive, and is not intended to represent legal advice. Please contact Tim Nichols for additional information or consideration of your particular society’s circumstances.
B. SUMMARY OF CHANGES
- With several specific exceptions, the new Act will automatically apply to all existing societies as soon it is proclaimed in force on November 28.
- Any provision in the current bylaws of an existing society that is inconsistent with the new Act will immediately cease to have an effect on November 28.
- Some of the most important revisions of the new legislation relating to directors and senior managers of societies. Some of those sections will not apply to existing societies for a grace period of two years after the new Act comes into force. (See for example item 8 below.)
- There will be a mandatory transition of existing societies under the new Act, which must be effected within two years after November 28, 2016. At a minimum this will entail the entry of certain basic information regarding all existing societies in the new electronic database being instituted by the BC Registrar of Companies. The filing will include the full text of their current constitutions and bylaws. (Reporting societies must also include prescribed provisions in their bylaws in the course of this transition filing. See Part C below.)
- Under the new Act there will for the first time be a distinction between member-funded societies and other societies. As the phrase suggests, societies that rely to a significant extent on public sources of funding will not be “member-funded”. A society which is a registered charity; or which received the greater of $20,000 or 10% of its gross income over the prior two fiscal years from donations or government funding, will be deemed not to be member-funded. Societies that are not member-funded must disclose certain financial information such as the remuneration of their directors and employees. (An example of a member-funded society would be a private club. Member-funded societies are not required to comply with these new disclosure obligations.)
- The format of constitutions of societies will change such that they include only the name and purposes of a society (and, if applicable, the fact that the society is member-funded). All other provisions in the constitution must be transferred to the bylaws. This includes provisions of the constitution that were previously unalterable. They will in effect become alterable by virtue of their inclusion in the bylaws.
- Perhaps the most important amendment of the new Act is the reduction of the threshold for the passage of special resolutions of the members of a society from the current majority of 75% to two-thirds. Special resolutions are required for proposed bylaw amendments such as name changes and other extraordinary matters. An existing society may avoid this fundamental change by amending its bylaws before November 28 to provide for a higher majority threshold for special resolutions than two-thirds. The majority may be determined to be as high as 100% on all or certain matters. (Amendments to bylaws only take effect when filed with the Registrar. If a society wishes to adopt a majority for special resolutions greater than two-thirds before November 28, it should initiate the requisite corporate proceedings right away. The current filing process will continue to apply until it is revamped as described in item 11 below.)
- The qualifications of directors will be heightened as specified. In addition, directors must consent in writing to their election or appointment. (These are some of the provisions of the new Act whose application is delayed until 2018 as mentioned in item 3 above.)
- Directors may not be remunerated by a society in that capacity unless the bylaws expressly permit such remuneration. Reimbursement of expenses will continue to be permissible.
- Fewer than a majority of the directors of a society may receive remuneration as employees or contractors. There will be enhanced procedures and provisions relating to conflicts of interest of directors and management.
- Most filings required to be made by societies with the Registrar of Companies will be made electronically. For example it will no longer be necessary to make paper filings of certified copies of special resolutions amending the constitution or bylaws. This online filing system has been used for BC companies for several years and is both convenient and efficient. However its adoption means that it will now be more important than ever to maintain a society’s official record book to a meticulous standard.
C. REPORTING SOCIETIES
- Only approximately 1% of BC societies are reporting societies so this part of this summary will not be of interest to many readers.
- Pursuant to the regulations under the new Act, a reporting society must include six specific provisions, word for word, in the set of bylaws filed by the society as part of its transition application. These mandatory prescribed bylaws relate to the appointment of auditors and financial reporting.
D. WHAT MUST BE DONE BY EXISTING SOCIETIES?
- Management should determine whether or not their society is member-funded under the new scheme (as summarized in item B-5 above). If they are not member-funded, management should familiarize themselves with the new related financial reporting obligations.
- The constitution and bylaws of every existing society should be reviewed in order to determine whether they conflict with the new Act. Any such conflicting provisions will cease to be effective as of November 28. It may, therefore, be necessary to enact related amendments of the constitution or bylaws prior to that date. Any such amendments must be effected the “old-fashioned way” under the current scheme, requiring the passage of special resolutions of the members by a 75% majority followed by paper filings in Victoria. In many cases this may also entail the convening of an extraordinary general meeting of the members of the society.
- Management should consider adopting new incorporation documents which conform generally to the new Act. It may not be necessary to do so prior to November 28.
- One of the possible options is to adopt the model bylaws appended to the new Act, perhaps with some customizing. The new model bylaws are fairly basic. They are materially different from the current model bylaws.
- Management should otherwise plan for mandatory transition under the new Act. Some of the detailed transitional steps and procedures are still in the process of being ironed out and published by the Registry.
The above summary should provide any person who is a member, director, officer, manager, contractor or advisor of an existing BC society with some important basic information about the impact of the new legislation. You are encouraged to obtain legal advice with respect to your particular situation. For additional information, please contact Tim Nichols.
© Copyright 2016 Timothy J. Nichols
Published with permission of Timothy J. Nichols
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