The provincial legislation that governs the majority of not-for-profits in British Columbia is receiving an overhaul. The current Society Act dates from 1977, and while outdated in some respects, it remains the legislation of choice for the incorporation of not-for-profit corporations in BC. The creation of the new Societies Act (“the new Act”) was driven by a growing need to modernize the regulatory scheme governing societies in BC. The new Act received royal assent at the BC legislature on May 14, 2015, but will likely not come into force until sometime in 2016.
What follows is a brief summary of some of the most significant features of the new Act. Note: A not-for-profit operating in BC that is not incorporated under the current Society Act will not be affected by these changes.
Qualifications of directors
The new Act will establish minimum qualifications for all directors of societies. Directors must:
- Be at least 18 years old (with the possibility of exception by regulation);
- Not be declared incapable of a court;
- Not be an undischarged bankrupt; and
- Have no unpardoned convictions for fraud or certain other prescribed offences in the past five years.
A society is free to set out additional qualifications in its bylaws. A person who does not meet all criteria cannot be elected or appointed as a director of a society, and a director who ceases to meet these qualifications must resign. The new Act will also allow for “ex officio” directors—that is, directors who become directors because of a particular attribute/position they have/hold, and not as a result of an election.
Unalterable provisions and special resolutions
Most societies are well aware that the current threshold to pass a special resolution at a meeting is three-quarters of the votes cast. The new Act will reduce this threshold to two-thirds. The new Act will also allow a society to set a higher threshold for special resolutions—up to unanimous approval!
This flexibility may help offset the fact that the new Act will prohibit societies from having unalterable provisions in their constitutions. When a society transitions to the new Act, it will have to move any unalterable provisions from its constitution to its bylaws, where the provisions will become alterable. Under the new Act, the only recourse for a society that wishes to make certain provisions more resistant to change will be to expressly set a higher-than-normal threshold to amend these provisions.
Members of a society have always been able to requisition a special meeting for a specific purpose, provided that at least 10% sign the requisition. The new Act will add to this ability by giving members the right to add specific issues to the agenda of an existing members’ meeting via a “member proposal.” This member proposal must be added to the agenda if it is signed by at least 5% of the society’s voting members. A society’s board of directors will only have the discretion to reject the proposal if it is substantially similar to an issue that was already proposed at an annual general meeting in the previous two years. However, the new Act will provide that the Society is not held liable as a result of publishing a proposal if required.
The new Act will establish a new category of society that did not exist under the former legislation by differentiating between publicly funded societies and “member-funded” societies. A member-funded society is one that is funded primarily by its own members to carry on activities for the benefit of same. The new Act will outline slightly relaxed standards regarding corporate governance, financial disclosure, and the distribution of assets on dissolution for member-funded societies, given the private nature of the funding.
While private clubs and member associations are the most likely types of organizations to fit into this new category, others may also meet the criteria. Organizations that will not meet the criteria include societies that receive a prescribed amount of funding from public donations or government sources, registered charities, student societies, and hospital societies.
The new Act will introduce the concept of a “senior manager,” defined as any individual who has been appointed by the directors to manage the activities or affairs of the society, either as a whole or in respect of a principal unit of the society. A senior manager may be an employee, contractor or volunteer. For example, the CEO or executive director of a society will almost always be a senior manager, and other senior staff or volunteers may also be so, if they are appointed by the society’s board.
The new Act will impose certain duties on all senior managers (including the duty to disclose a conflict of interest), but also provides rules on indemnification, insurance, and the limitation of liability for such persons. The purpose of regulating senior managers is to decrease the potential for abuse by a society’s management.
Public disclosure of remuneration
The new Act will require societies to disclose the remuneration, if any, paid to its directors and to its 10 highest-paid employees and contractors earning over a prescribed amount. This disclosure will have to be made in a note to the society’s annual financial statements, which will be accessible to both the society’s members and the general public. To counterbalance any privacy concerns, the names of the directors, employees, and contractors will not have to be included in the financial statements. Note: The requirements to disclose remuneration information and make financial statements accessible to the public are not applicable to member-funded societies.
Inspection of records
The new Act will clearly set out the record-keeping obligations of a society by outlining the records that must be maintained and identifying the individuals who may inspect them. A society will not be obligated to keep a record if 10 years have passed since it was last altered or created and if the record is no longer “relevant.”
Aligning with British Columbia’s current corporate legislation, the new Act will provide greater flexibility by permitting a society to keep its records in any format that enables them to be inspected and copied. The new Act will also allow for different people to have different inspection rights; for example, directors may inspect all records without restriction, but a society’s bylaws may restrict members from inspecting certain records.
Director’s conflicts of interest
Under the current Society Act, a director must disclose any interest in a proposed contract to the other directors; otherwise they could become liable to account for any profits made under the contract. The new Act, however, will clarify that the disclosure obligation applies to any actual or proposed contracts or transactions in which a director has a “material” interest (including a non-pecuniary interest). Under the new Act, the requisite disclosure of a director will have to be documented in the minutes of a directors’ meeting, in a written consent resolution, or in any other written document addressed and mailed to the society’s directors.
Finally, the new Act will also prescribe that a director-in-conflict must: abstain from voting on (or consenting to, in the case of a consent resolution) a resolution of directors in respect of the matter; physically leave the directors’ meeting while the matter is being voted on or discussed (unless asked by the other directors to be present to provide information); and refrain from any other action intended to influence the other directors’ discussion or vote.
The transition period
Once it comes into force, the new Act will contemplate a two-year transition period during which existing societies will be expected to take steps to move to the new Act.
Michael Blatchford is a lawyer with Vancouver-based law firm Bull Housser, working in the firm’s charities and tax-exempt organizations group.
Bryan Millman practises within the wealth preservation group at Bull Housser, with a primary focus in the areas of charities and tax-exempt organizations.