Legal Issues forNot-for-profits

Derek W. Hillier, Q.C.Easton Hillier Lawrence

Preston61 Elizabeth Drive

Gander, NL1.800.256.4006

LegalLegal Issues Issuesfor Not-For-Profitsfor Not-For-Profits

Facilitated by: Derek W. Hillier, Q.CFacilitated by: Derek W. Hillier, Q.CEaston Hillier Lawrence PrestonEaston Hillier Lawrence Preston

Three Sessions:Three Sessions:Corporations Act and Corporate Corporations Act and Corporate

ProceduresProceduresDirectors’ LiabilityDirectors’ LiabilityCorporate LiabilityCorporate Liability

Format:Format:LectureLectureCase StudyCase StudyQuestions and answersQuestions and answers

What is riskmanagement?

Checklist for RiskManagement

In law small things can make a big difference

Cost of a comma!

Here's the crucial sentence (as excerpted in theGlobe and Mail):

The agreement “shall continue in force for aperiod of five years from the date it ismade, and thereafter for successive fiveyear terms, unless and until terminated byone year prior notice in writing by eitherparty."

Introductions

Legal Issues for Not-for-Profits

Corporations Act and

Corporate Procedures

http://www.assembly.nl.ca/

Objectives of Workshop

Statutory basis for corporations without share capital

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

Introduction

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

charitable non-profit organizations

ComparisonCharitable and Non-profitSimilarities: Operated without a profit basis Not permitted to distribute profits to members Resources devoted to carrying out objects Benefit to public

Differences betweenCharitable and Non-profit What can be considered a public benefit is

more restricted for a charitable organization

Four categories of charitable objectsRelief of povertyAdvancement of educationAdvancement of religionAny other purpose beneficial to the

community

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 corporationCorporation: 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

Partnership: Does not have a distinct legal existence apart from

the combination of its individual partners

Co-operatives

Co-operatives Act Common shares Members

When 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, whether incorporated under this Act, the former Act or an Act of Newfoundland or the province.”. (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

GOVERNMENT OFNEWFOUNDLAND AND LABRADORDepartment of Government Services Commercial Registrations Division The Corporations Act ( Form 1 A ) Articles of Incorporation ( Sections 12, 421 )(Without Share Capital)1. Name of Corporation_______________________________________________________________________________2. The Place in Newfoundland and Labrador where the Registered Office will be situated_______________________________________________________________________________

3. (a) Please indicate a Minimum number of Directors (not less than 3): ________________(b) Please indicate a Maximum number of Directors : ________________4. Restrictions, if any, on business the Corporation may carry on ( see schedule A )_______________________________________________________________________________5. Other provisions: ( see schedule B )______________________________________________________________________________

IncorporatorsName Address Signature Phone Number

Registry of Companies, P.O. Box 8700, Confederation Building, St. John.s, NL, A1B 4J6Telephone (709) 729-3317, Facsimile (7

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 Proxy

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

Corporate Procedures

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

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 Role of officers Standard of care Conflicts of interest

Role of Directors

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

Higher standards concerning conflicts in charitable organizations

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 Environmental Protection Act

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

Discussion DirectorsIssues

Legal Issues for Not-For-Profits

Corporate Liability

Corporate LiabilityCorporate Liability

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

negligence of the corporation

Other Corporate Liability

Criminal and quasi-criminal liability Contractual liability Statutory liability

eg for business tax or GST

Case StudyCorporate Liability

Insurance Issues

Protection of Directors and Officers

Corporation can indemnify Purchase of Directors and Officers Liability

Insurance Exercise of Due Diligence

Directors and Officers liability insuranceDoes the policy cover: Employee practices? Defamation? Misrepresentation/non-disclosure? Unpaid wages? Un-remitted deductions at source? GST?

Information required by broker

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

corporation Previous claims

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?

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

Property Insurance

Buildings Equipment Inventory Glass Personal property of officers and

employees

Some Other Types of Insurance

Commercial general liability

Business loss insurance

Travel accident insurance

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

Discussion

InsuranceIssues

Web sites for reference

EastonHillierLawrence Preston: http://www.ganderlawyers.com/index.htm

Department of Innovation, Trade and Rural Development:

lhttp://www.intrd.gov.nl.ca/intrd/regionaldev/capacitybuilding.html

Newfoundland and Labrador Legislation:http://www.assembly.nl.ca/

Government of Canada Legislation:http://laws.justice.gc.ca/en/notice/index.html?redirect=/en/

Useful web sites

More Web Sites Canada Revenue Agency -  Non-profit organizations  http://www.cra-arc.gc.ca/tx/nnprft/menu-eng.html

An example of a site which contains info on nonprofit practices: http://www.npgoodpractice.org/Default.aspx

Risk management info from organization in London Ontario http://www.pillarnonprofit.ca/resources_and_links/risk_management/

Legal Issues forNot-for-profits

Derek W. Hillier, Q.C.Easton Hillier Lawrence

Preston61 Elizabeth Drive

Gander, NL1.800.256.4006