Legal Issuesfor Not-For-Profits

Facilitated by: Derek W. Hillier, Q.C

Easton Facey Hillier Lawrence

Project Partners:

Mariner Resource Opportunities Network Inc.

Newfoundland and Labrador Rural Development Council

Funding Provided By:

Comprehensive Economic Development Agreement

Labour Market Development Agreement

Non-profit Corporations Workshop

Three Sessions:

1. Corporations Act and Corporate Procedures

2. Directors’ Liability

3. Corporate Liability

Format: Lecture Case Study Questions and answers

Legal Issues for Not-for-Profits

Corporations Act and

Corporate Procedures

Introduction

Importance of non-profit organizations Meaning of “non-profit” Comparison between charitable and non-

charitable non-profit organizations

Objectives of Workshop

Statutory basis for corporations without share capital

Liability issues for the directors Liability issues for the corporation Minimizing liability through insurance

ComparisonCharitable and Non-profit

Similarities: Operated without a profit basis Not permitted to distribute profits to members Resources devoted to carrying out objects Benefit to public

Differences

Understanding the Non-profit Corporation

Alternatives for non-profit groups Other business entities The Newfoundland and Labrador Corporations Act Incorporating the non-profit corporation By-Laws (Constitution)

Alternatives for Non-profits

Incorporation under the Newfoundland and Labrador Corporations Act

Incorporation under the Canada Business Corporations Act

An unincorporated association

Other Business Entities

• Partnership

• Co-operatives

Differences between a partnership and a corporation

Partnership: Does not have a distinct legal existence apart from

the combination of its individual partners

Corporation: Exists as a separate legal entity in its own name Can sue and be sued in the name of the corporation Can enter into contracts in the corporate name

Co-operatives

Co-operatives Act Common shares Members

Whether organized on a co-operative basis

A member or delegate has not more than one vote

A member or delegate is not entitled to vote by proxy

Business is carried primarily for the benefit of members

The Corporations Act general provisions

Applicability to other corporations “Corporation” – a body corporate incorporated

under the Act “Body corporate” – a body corporate however or

wherever incorporated Application of the Act: “This Act …applies to every

body corporate incorporated under an act of Newfoundland or the Province of Newfoundland”. (Section 4(1))

Corporations to which the Corporations Act does not apply

A body corporate created for a Government or municipal purpose

A body corporate under the Agricultural Societies Act

A body corporate under the Cooperative Societies Act

Capacity and Powers

The rights, powers and privileges of a natural person

By-law not necessary in order to confer a particular power

Restrictions in articles

Incorporating the Non-profit Corporation

Articles of incorporation Notice of registered head office Notice of directors

Articles of Incorporation

Name of Corporation Registered office Number of directors Restrictions on the business that the

corporation may carry on Other provisions

By-Laws

Members Meetings of members Voting at meetings of

members Board of directors Meetings of board of

directors

Officers Authority to execute

documents Notices Amendments

Members

Who is eligible Can corporations be a member Will there be one or several classes of voting and

non-voting members Is there a fee for membership Will there be delegates Under what circumstances can membership be

terminated

Meetings of Members

What is the quorum for a meeting What notice is required for meetings of

members Who has the authority to call a general

meeting What percentage of members can request a

meeting of members

Voting at Meetings of Members

Which membership classes have the right to vote?

Is voting by proxy permitted?

Other Corporate Issues

Subsidiary companies Record keeping Signing authority – banking Execution of documents and the corporate

seal Youth presence and voting at board tables

Record Keeping – Corporate Records (Section 36)

A corporation shall prepare and maintain, at its registered office or at another place in the Province designated by the directors, records containing:

The articles and by-laws and all amendments to the articles and by-laws

Minutes of meetings and resolutions of shareholders Copies of all notices of change of directors A securities register complying with Section 96

Case Study

Questions & Answers

Legal Issues for Not-For-Profits

Directors’ Liability

Members

Role and responsibilities of members Difference between director’s liability and

member’s liability How members can lose limited liability

Role of Directors

Nature of Directorship

To avoid personal liability a director must understand:

The legal nature of the corporation The director’s role in the corporation The director’s duties under the statute, the

by-laws and common law

Role of Directors

Nature of Directorship Officers of the corporation Standard of Care

Directors have the duty to act:

Honestly In good faith and in the best interest of the

corporation With care, diligence and skill

Role of Directors

Nature of directorship Nature of officership Standard of care Conflicts of interest

Higher standards concerning conflicts in charitable organizations

Ultra vires acts

Liability of directors

Difference between director’s liability and corporate liability

Statutory liabilities (Federal)

Federal Statutory Liabilities

Income Tax Act Goods and Services Tax Act Canada Pension Plan Employment Insurance

Newfoundland and LabradorStatutory Liabilities

Corporations Act Occupational Health and Safety Act Workplace, Health, Safety and

Compensation Act Labour Standards Act

Specific liability issues

Absence when decisions made Representation on other boards Serving on unincorporated committees

Directors and Officers liability insurance

Does the policy cover: Employee practices? Defamation? Misrepresentation/non-disclosure? Unpaid wages? Un-remitted deductions at source? GST?

Questions to ask your broker

Monetary limit? Is the limit per year or per occurrence? Excess coverage? Coverage of actions taken prior to policy being put in place? Deductible for property damage? Deductible for personal injury claims? Who exactly is insured?

Information required by broker

Details of corporation Revenues Number of employees and volunteers Details about activities carried on by the

corporation Previous claims

Possible Exclusions

Personal profit to which directors not legally entitled

Punitive or exemplary damages

Criminal or deliberate fraudulent acts

Bodily injury

Destruction of property Acts or omissions of

directors acting as directors of another entity

Employee claims Environmental

Legal Issues for Not-For-Profits

Corporate Liability

Corporate Liability

Introduction Negligence of the corporation Vicarious liability Differences between vicarious liability and

negligence of the corporation

Other Corporate Liability

Criminal liability Tort Liability Contractual liability Statutory liability

Types of Insurance

Property Insurance Commercial general liability Business loss insurance Travel accident insurance Fiduciary liability

Property Insurance

Buildings Equipment Inventory Glass Personal property of officers and employees

Commercial general liability endorsements

Employees renting cars in company name Tenants legal liability Excess insurance

Business Loss Insurance

Loss of earnings for a specific time Loss of earnings until building or business

reopens Extra expense

Case Study

Questions and Answers