Legal Roles & Responsibilities “Ignorance is no defence” – Legal maxim Graham Boyce Management Advisory Service
Legal Roles & Responsibilities Agenda Introduction & Background Purpose of workshop Incorporation: the legal environment NFP’s v. Charities Some definitions The Board’s Role Responsibilities of the Board Exploring governance - the Rules Exploring governance - the 5 M’s The Board & the ED The Director’s Role Responsibilities of a Director Fulfilling expectations The trouble with titles Indemnities & insurance Challenges with NFP’s The top 3 problems
Legal Roles & Responsibilities Introduction & Background What is a “not-for-profit”? “An organization organized and operated exclusively for social welfare, civic improvement, pleasure, sport, recreation, or any other purpose except profit (e.g. a club, society, or association). The organization will generally be exempt from tax if no part of its income is payable to, or available for, the personal benefit of a proprietor, member or shareholder.” Source: Canada Revenue Agency Can run a business; can make a profit Lots of different legal structures: unincorporated, incorporated, co-operative, social club, national sports association…
Legal Roles & Responsibilities Introduction & Background Incorporation The process of establishing a legal entity, separate from its members or shareholders Can provide legal protection, as it is the “corporation” that does things, not individual members, so it is the corporation that gets taken to court! Facilitates contracting – for financial services, for premises, for supplies etc. – as the corporation continues regardless of membership changes Can be under federal legislation: Canada Not-for-Profit Corporations Act (CNCA) …or provincial legislation – for example: Ontario – Corporations Act (OCA) British Columbia – Societies Act
Legal Roles & Responsibilities Introduction & Background Incorporation CNCA OCA Modern legislation (2009) Dated, adapted legislation (1990) Single regulator for corporate changes Public Guardian & Trustee also involved Electronic filing / retrieval Paper/microfiche filing / retrieval $250K audit exemption limit $100K audit exemption limit No ex-officio directors Ex-officio directors allowed Stable & known Subject to replacement (“ONCA”)
Legal Roles & Responsibilities Introduction & Background Incorporation Ontario Corporations Act
Legal Roles & Responsibilities Introduction & Background Incorporation CNCA OCA Modern legislation (2009) Dated, adapted legislation (1990) Single regulator for corporate changes Public Guardian & Trustee also involved Electronic filing / retrieval Paper/microfiche filing / retrieval $250K audit exemption limit $100K audit exemption limit No ex-officio directors Ex-officio directors allowed uncertain! Stable & known Subject to replacement (“ONCA”)
Legal Roles & Responsibilities Introduction & Background Incorporation Letters Patent granted under the current provincial Corporations Act (OCA) Certificate of Incorporation granted under the Canada Not for Profit Corporations Act (CNCA) Certificate of Continuance granted under the Canada Not for Profit Corporations Act (CNCA) to organizations originally incorporated under the OCA …annexed to which are the Articles
Legal Roles & Responsibilities Introduction & Background Incorporation The corporation’s Articles set out key information including: The classes of membership & their voting rights The number of directors or the minimum / maximum numbers The “purposes” (previously “objects”) of the corporation Any restrictions on its activities
Legal Roles & Responsibilities Introduction & Background Charities are a sub-set of Not-for-Profits Not-for-profit: Charity: “An organization organized and “An organization established & operated exclusively for social operated for charitable purposes welfare, civic improvement, that devotes its resources to pleasure, sport, recreation, or any charitable activities. Its purposes other purpose except profit (e.g. a must fall within one or more of club, society, or association). The the following categories: organization will generally be • the relief of poverty; ✔ exempt from tax if no part of its • the advancement of education; ✔ income is payable to, or available • the advancement of religion; ✔ for, the personal benefit of a • certain other purposes that proprietor, member or benefit the community in a way ✔ shareholder.” the courts have said is charitable. It must be resident in Canada and cannot use its income to benefit its members.” Source: Canada Revenue Agency
Legal Roles & Responsibilities Introduction & Background Charities are a sub-set of Not-for-Profits Charity: Model purposes “An organization established & operated for charitable purposes that devotes its resources to Promotion of health charitable activities. Its purposes Addressing and preventing must fall within one or more of specific problems faced by: – children or youth the following categories: – families • the relief of poverty; • the advancement of education; Relieving conditions attributable to being aged • the advancement of religion; • certain other purposes that Relieving conditions associated benefit the community in a way with disability the courts have said is charitable. Providing public amenities It must be resident in Canada and cannot use its income to benefit Source: Canada Revenue Agency its members.”
Legal Roles & Responsibilities Introduction & Background Charities are a sub-set of Not-for-Profits “Immigrants” not a defined charitable group c.f. “the poor” Vancouver Society of Immigrant and Visible Minority Woman v. M.N.R.1999
Legal Roles & Responsibilities Introduction & Background Charities are a sub-set of Not-for-Profits What % of revenue? Same for N-F-P Do you apply? Source: Canada Revenue Agency More demanding bookkeeping Added cost… More reporting Required spending
Legal Roles & Responsibilities Introduction & Background Four different legal environments CNCA CNCA NFP Charity OCA OCA NFP Charity
Legal Roles & Responsibilities Introduction & Background Definitions “Board” of Directors: “A group of people comprising the governing body of a corporation.”
Legal Roles & Responsibilities Introduction & Background Definitions Board of Directors ✘ “Advisory” = expert panel; never exists by itself ✔ “Executive” = a true board, likely involved in operating ✔ “Governance” = a true board but with no hands on involvement Many different descriptors; are they the same? ✔ “Main” = a true board usually with an advisory one ✔ “Managing” = a true board; operational involvement uncertain ✔ “Policy” = a true board but with no hands on involvement ✔ “Working” = a true board but involved in hands on operations “…” Beyond “Advisory”, descriptor makes no difference to legal status
Legal Roles & Responsibilities Introduction & Background Definitions Governance model “Advisory” “Working” “Working” “Executive” “Main” “Management” “Managing” “Policy” “Policy” “Governance”
Legal Roles & Responsibilities Introduction & Background Evolutionary/Maturity State Corporate-like Board Professional management Strategic alliances …where are you? Transforming Growing / maturing Developing Stagnating / Board = recruited declining Starting up Committees Renewed Board = elected Declining interest commitment Lower energy Board = everyone Board / staff Fundraising Start of burn out High energy disconnect emphasis Managing / policy Maximum Operational / Managing & policy making involvement funding challenges making split Vision/mission Managing ED & staff ED No ED
Legal Roles & Responsibilities Introduction & Background Definitions Board of Governance Directors model ✘ “Advisory” ✔ “Working” “Working” ✔ “Executive” ✔ “Main” “Management” ✔ “Managing” ✔ “Policy” “Policy” ✔ “Governance” Model descriptor makes no difference to legal status or accountability
Legal Roles & Responsibilities Introduction & Background Definitions Board of Directors: ? “A group of people comprising the governing body of a corporation.”
Legal Roles & Responsibilities Introduction & Background Definitions Governance = “The act, manner, function of governing” Oxford English Dictionary “The action, manner or system of governing” Collins English Dictionary “Direction; control; management” Nuttalls English Dictionary “The way that [an organization] is controlled by the people who run it” Merriam-Webster’s Learner’s Dictionary “The process of decision-making and the process by which decisions are implemented (or not implemented)” UN ESCAP
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