BRITISHCOLUMBIALAWINSTITUTE 1822EastMall,UniversityofBritishColumbia Vancouver,BritishColumbiaV6T1Z1 Voice:(604)8220142Fax:(604)8220144E‐mail:bcli@bcli.org Website:www.bcli.org

Backgrounder

ReportonProposalsforaNewSocietyActDate:5September2008

INTRODUCTION

In July2006, theBritishColumbiaLaw Institutecommencedamajor two‐yearproject toconsiderreformofBritishColumbia’snot‐for‐profit incorporationstatute, theSocietyAct.Theprojecthadtwodistinctphases.Overthefirstphase,themajorlegalissuesrelatingtotheSocietyActandtheleadingmodelsforreformwerestudied.Thisphaseculminatedinthe publication of a consultation paper, which sought the views of the public on 106tentativerecommendationsforreformoftheSocietyAct.Thesecondphasebuiltonthesetentativerecommendationsandontheresponsestothemthatwereceivedfromthepublic.Theculminationofthisphase,andtheprojectasawhole,isthepublicationofthisreport.This project has been made possible by a grant from the Law Foundation of BritishColumbia.THESOCIETYACTREFORMPROJECTCOMMITTEE

Workonthisprojectwascarriedoutbyavolunteerprojectcommittee.Thecommitteewasformedshortlyafterthecommencementoftheproject.Thecommitteemetregularlysinceitsfirstmeeting,whichwasheldinSeptember2006.Themembersofthecommitteeare:MargaretMason—chair KenBurnett (partner,Bull,Housser&TupperLLP) (partner,MillerThomsonLLP)ColleenKelly MurrayLanda (executivedirector, (associatedirector,gift&estateplanning, VolunteerVancouver) UBCDevelopmentOffice)MikeMangan KimThorau (barrister&solicitor) (principal,Perrin,Thorau&Associates)BobKucheran (student­at­law&ex­CEO,BCPharmacyAssociation)

BritishColumbiaLawInstitute—SocietyActReformProject Page2of5BackgrounderNo.3—ReportonProposalsforaNewSocietyAct 5September2008KevinZakreski(stafflawyer,BritishColumbiaLawInstitute)istheprojectmanager.THESTRUCTUREOFTHEREPORT

Thisreportcomprisestwoparts.PartOnecontainsbackgroundmaterial.Itintroducesthescopeofthisproject,describesthesocietyasa legalform,brieflydiscussesthehistoryoftheSocietyAct, andexplains thereasonswhy the time is ripe for reformof the law.PartTwo,whichmakesupthebulkof thisreport,containsthecommittee’srecommendationsforreform.Theserecommendationsareembodiedindraftlegislation.Thisdraftlegislationis intended to be a comprehensive model of a new Society Act. Part Two also containscommentaryoneachoftheprovisionsofthenewSocietyAct.Thiscommentarycontainsabriefstatementofthepolicyofeachprovision,ashortdescriptionofanychangesthepro‐visionwillmaketothelaw,andasummaryofhowtheprovisionisintendedtooperateinpractice.BACKGROUND

TheScopeoftheProject

Recent studies have pointed to a number of challenges facing the not‐for‐profit sector.Thesestudieshaveidentifiedthefollowingasareasofconcern:internalgovernanceprac‐tices; measurement of program outcomes; fundraising; the definition of “charity” underfederal tax legislation; financial reporting andmanagement; and outdated organizationallaws.Thisproject focusesstrictlyon the last topic.This isbecause theother topicshave,comparatively, been the subject of extensive comment elsewhere and because amodernorganizationallawcanprovideafirmfoundationthatwillallowforprogresstobemadeontheotherfronts.ThenameofBritishColumbia’snot‐for‐profitorganizationallawistheSo­cietyAct.TheSocietyActprovidesfortheincorporation,organization,governance,financialaffairs,amalgamation,anddissolutionofsocieties.WhatAreSocieties?

A society is an incorporated not‐for‐profit body. The law recognizes threemain units ofnot‐for‐profit activity: the unincorporated not‐for‐profit association; the charitable trust;andthesociety.Unlikethefirsttwounits,asocietyisformedbyincorporation,whichre‐quiresthe filingofcertaindocumentswithagovernmentofficial. Incorporationconfersanumberofbenefits,themostimportantofwhichisstatusaspersonat law.Asaresultofthisstatus,themembersofasocietyenjoylimitedliability.Inthisrespect,societiesresem‐ble for‐profit companies.Thereareanumberofcoreprinciples thatdistinguishsocietiesfromcompanies:societiesareincorporatedprimarilytopursuepublic,not‐for‐profitpur‐poses;societiesarerestrictedfromdistributingtheirassetstotheirmembersduringtheirexistence;andsocietiesmustnothavesharecapital.BriefHistoryoftheSocietyAct

TheBritishColumbiaLegislatureenactedthefirstSocietyAct in1920.TheSocietyActhasbeenupdated approximately every30years since then.NewActs appeared in1947and

BritishColumbiaLawInstitute—SocietyActReformProject Page3of5BackgrounderNo.3—ReportonProposalsforaNewSocietyAct 5September20081977.EachtimetheLegislaturehasenactedanewSocietyActthesizeandscopeoftheleg‐islationhas grown inorder to accommodate the increasing sophisticationof thenot‐for‐profit sector. The current Society Act is largely the 1977 Act, with some miscellaneousamendmentsinafewareas.ReasonsWhyReformoftheSocietyActisNeededNow

TherearethreemainreasonswhyanewSocietyActisneedednow.First,thecurrentSoci­etyActwaslargelybasedonthe1973CompanyAct,whichwastheorganizationalstatutefor for‐profit companies. In 2004, theCompany Act was repealed and replacedwith theBusinessCorporationsAct,whichnowprovidesastreamlinedandmodernlegalframeworkforcompaniesinthisprovince.AsaresultoftherepealoftheCompanyAct,not‐for‐profitsocietiesarenowsaddledwithsomeratheronerousprovisionsthatnolongerapplytothefor‐profit companies for which they were originally designed. Second, the not‐for‐profitsectorhasgrownanddevelopedinwaysthatcouldnothavebeenforeseenin1977.Newlegislationisneededtoestablishanadequatelegalframeworkforthisincreasinglyimpor‐tantandsophisticatedsector.Third,reforminitiativesareunderwayorhaverecentlybeencompletedinotherjurisdictions.ThisdevelopmentgivesBritishColumbiaanopportunitytoenactbothmodernandharmonizedlegislation.DRAFTLEGISLATION

ThedraftofanewSocietyActpreservesandfine‐tunesmanyofthecoreelementsofnot‐for‐profit law within a structure that is modelled on theBusiness Corporations Act. ThedraftActcontains14Parts.Iteffectsmajorreformsinthefollowingareas.IncorporationandNaming

ThenewSocietyActadoptsthestreamlinedincorporationprocedureoftheBusinessCorpo­rationsAct,makingelectronic incorporationavailable tosocieties.Societies incorporated,converted,amalgamated,orcontinuedintoBritishColumbiaunderthenewActwillhavetoadopttheword“society”aspartoftheirnamesasacorporatedescriptor.(Existingsocie‐tiesareexemptedfromthisrequirement.)ConstitutionandBylaws

Muchofthesubstanceofthecurrentlawrelatingtoasociety’sconstitutionandbylawsismaintained.Intermsofform,thenewActprovidesforamodifiedversionofthenoticeofarticlesusedbycompaniesasthemodelforthesocietyconstitution.ThenewActcontinuesto require societies to file their bylaws with the Registrar of Companies, which will bemaintainedbytheregistrarasapublicrecord.CapacityandPowers

Anyexistingremnantsoftheolddoctrineofultraviresareabrogated.ThenewSocietyActembracestheprinciplethatsocietiesare legalpersonswiththesamecapacityasanindi‐vidualoffullcapacity.

BritishColumbiaLawInstitute—SocietyActReformProject Page4of5BackgrounderNo.3—ReportonProposalsforaNewSocietyAct 5September2008OfficesandRecords

TheeccentricprovisionsrelatingtoofficesandrecordscurrentlyintheSocietyActarere‐vamped along the lines of theBusiness Corporations Act. The new Society Act contains astringentprocedureforaccesstoasociety’slistofitsmembers.Finance

Anumberofrestrictive,andoutofdate,rulesgoverninghowasocietyconductsitsfinan‐cialaffairshavenotbeencarriedforwardinthenewSocietyAct.Inparticular,asocietywillnolongerberequiredtoobtainaspecialresolutioninordertoissueadebenture.DirectorsandOfficers

ThenewSocietyActexpandsandclarifiestherulesrelatingtodirectors.Examplesofsuchrulesincludeelectionorappointmentofdirectors,minimumnumberrequired,residency,qualifications, vacancies, and removal. Since these rules are fundamentally procedural innature,theyareharmonizedwithsimilarrulesintheBusinessCorporationsAct.Inaddition,thenewSocietyActprovidesmoreclarityonthestatusofofficers.Duties,Liabilities,andConflictsofInterest

ThenewSocietyActcontainsamodernregimetocovertheduties,liabilities,andconflictsofinterestofdirectorsandofficers.Asaresult,thisareaseesanumberofmajorchangestotheskeletalandoutdatedrulesthatcurrentlyapplytosocieties.Amongtheprovisions inthenewSocietyActare:• comprehensiveconflictof interestrules,modelledonthose intheBusinessCorpora­

tionsAct;• indemnification provisions that no longer require an application to court for ap‐

proval;• limitation on liability when reasonably acting on reports prepared by officers and

professionals,adissentprocedure,andrelieffrompersonalliabilityonacase‐by‐casebasisbythecourt(astatutoryimmunityfrompersonalliabilityfordirectorsandoffi‐cerswasstudiedbutrejected);and

• afteratwo‐yeartransitionalperiod,aprohibitiononpaidstaffmembersservingonthesociety’sboardofdirectors.

Members

There are few changes regardingmembers. Themost noteworthy is the lowering of theminimumnumberofmembersthatasocietymusthavetoone.

BritishColumbiaLawInstitute—SocietyActReformProject Page5of5BackgrounderNo.3—ReportonProposalsforaNewSocietyAct 5September2008MeetingsofMembers

ThenewSocietyActfillsingapsthathavedevelopedintheexitingproceduralrulesregard‐ingmeetingsofmembers.Theserulescontemplatetheuseofmodern,electronicmeansofcommunication.Members’Remedies

Thetwomajorcurrentremediesforaggrievedmembers—investigationandoppression—are clarified and updated in the newAct. To these remedies theAct adds remedies thathavebecomeestablishedacrossthefor‐profitandnot‐for‐profitcorporatesectors:deriva‐tiveactionsandcomplianceorrestrainingorders.SocietyAlterations

ThenewSocietyActcontainsmodernprovisionsrelatingtoamalgamations,conversionsofcooperativeassociations into societies, continuation intoandoutofBritishColumbia, ar‐rangements,andextraordinarydisposalsofasociety’sundertaking.Liquidation,Dissolution,andRestoration

ThenewSocietyAct containsa comprehensive regimegoverning liquidation,dissolution,andrestoration.ThisregimeislargelymodelledonexistingprovisionsintheBusinessCor­porationsAct.ThenewActdoesnot containanymajordeparture from the current rulesgoverningthedisposalofanyremainingassetsonasociety’sdissolution.MiscellaneousandTransitional

ThenewSocietyActdoesnotcarryforwardthereportingsocietydesignation.TransitiontothenewActshouldbedealtwithinamannersimilartothetransitionfromtheCompanyActtotheBusinessCorporationsAct.Societiesshouldbegivenatwo‐yearpe‐riodtomakethenecessarytransitionalchanges.Duringthisperiod,theyshouldbegivensupportandassistancefromtheprovincialgovernment.CONCLUSION

ThecommitteehasconcludedthatthetimehascometoenactanewSocietyAct,onewhichbetter meets the needs of British Columbia not‐for‐profit organizations and which ad‐vancesthegoalofharmonizingcorporatelegislationinthisprovince.