BRITISH COLUMBIA L INSTITUTE - BCLI
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BRITISH COLUMBIA LAW INSTITUTE 1822 East Mall, University of British Columbia Vancouver, British Columbia V6T 1Z1 Voice: (604) 822 0142 Fax: (604) 822 0144 E‐mail: [email protected] Website: www.bcli.org Backgrounder Report on Proposals for a New Society Act Date: 5 September 2008 INTRODUCTION In July 2006, the British Columbia Law Institute commenced a major two‐year project to consider reform of British Columbia’s not‐for‐profit incorporation statute, the Society Act. The project had two distinct phases. Over the first phase, the major legal issues relating to the Society Act and the leading models for reform were studied. This phase culminated in the publication of a consultation paper, which sought the views of the public on 106 tentative recommendations for reform of the Society Act. The second phase built on these tentative recommendations and on the responses to them that we received from the public. The culmination of this phase, and the project as a whole, is the publication of this report. This project has been made possible by a grant from the Law Foundation of British Columbia. THE SOCIETY ACT REFORM PROJECT COMMITTEE Work on this project was carried out by a volunteer project committee. The committee was formed shortly after the commencement of the project. The committee met regularly since its first meeting, which was held in September 2006. The members of the committee are: Margaret Mason—chair Ken Burnett (partner, Bull, Housser & Tupper LLP) (partner, Miller Thomson LLP) Colleen Kelly Murray Landa (executive director, (associate director, gift & estate planning, Volunteer Vancouver) UBC Development Office) Mike Mangan Kim Thorau (barrister & solicitor) (principal, Perrin, Thorau & Associates) Bob Kucheran (student-at-law & ex-CEO, BC Pharmacy Association)
Transcript of BRITISH COLUMBIA L INSTITUTE - BCLI
BRITISHCOLUMBIALAWINSTITUTE 1822EastMall,UniversityofBritishColumbia Vancouver,BritishColumbiaV6T1Z1 Voice:(604)8220142Fax:(604)8220144E‐mail:[email protected] 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.
