Changing the structure or nature of the corporation

Not-for-profit corporations sometimes need to change their structure or their nature.

When you make these types of changes to your corporation, you have to meet specific requirements under the Canada Not-for-profit Corporations Act (NFP Act).

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Amending articles

Any changes to the articles require a special resolution of the members (see Member resolutions). Such changes could include any of the following:

  • changing the corporation's name (unless it is a numbered name, in which case the directors can change it to a word name without the approval of the members)
  • changing the province where the corporation's registered office is located
  • adding, changing or removing any restriction on the activities that the corporation can carry on
  • creating a new class or group of members
  • dividing any class or group of members into two or more classes or groups
  • increasing or decreasing the number of, or the minimum or maximum number of, directors fixed by the articles
  • changing the statement of the purpose of the corporation
  • changing the statement concerning the distribution of property remaining on liquidation after the discharge of any liabilities of the corporation
  • adding, changing or removing any other provision in the articles (refer to subsection 197(1) of the NFP Act).

A proposal to make any of the changes above can be made by a director or a member who is entitled to vote at an annual meeting of members. The proposed amendment should be included in the notice of the meeting at which the proposal will be considered.

If a corporation has more than one class of members, the NFP Act provides that members of each class are entitled to vote separately as a class on a proposal to make certain amendments to the articles and by-laws, even if the members of a particular class do not otherwise have the right to vote (refer to subsections 199(1) and 199(2) of the NFP Act). These amendments are those that:

  1. exchange, reclassify or cancel all or part of the memberships of a particular class
  2. add, change or remove rights or conditions attaching to memberships of a particular class (including reduction or removal of a liquidation preference) or add, remove or change prejudicially voting or transfer rights of a particular class
  3. increase rights of any other class having equal or superior rights to those of a particular class
  4. increase rights of a class of members having rights inferior to those of a particular class to make the inferior class equal to or superior to the particular class
  5. create a new class having rights equal to or superior to those of a particular class
  6. exchange or create a right of exchange of all or part of the memberships of one class into memberships of another class.

Sections (a) and (e) above are optional and the articles can provide that these rights do not apply to certain membership classes of a corporation. If this option is chosen, it means that, for example, under section (a) other classes of members could cancel a particular class of members without the approval of the class of members being cancelled, and that under section (e), new classes of members with equal or superior rights to an affected class can be added to the articles without the approval of the affected class.

All of the other changes referred to above in sections (b), (c), (d) and (f) provide specific class protections (which cannot be removed in the articles) that allow each class to vote separately as a class concerning the matters referred to in those sections. This right to have a separate class vote applies even where a particular class does not otherwise carry a right to vote in the articles.

Notice of a meeting to consider a resolution to amend the articles must be sent to the members. For information on the requirements for notices of meetings of members, see The members. You can amend your articles through the Online Filing Centre or amend them by sending your request by email or mail.

Amalgamations

The NFP Act allows two or more corporations to amalgamate and continue as one corporation (refer to section 204 of the NFP Act). Both "long form" and "short form" amalgamations are possible, depending on the circumstances. All corporations proposing to amalgamate must already be incorporated or continued under the NFP Act.

If the corporations proposing to amalgamate do not have the same members (that is, the corporations are not related), a long form amalgamation is required. In a long form amalgamation, each corporation must first enter into an amalgamation agreement which includes the information required by the NFP Act (refer to the paragraph below). In order to proceed with the amalgamation, the boards of directors of each corporation must then approve the agreement and submit it to the members of each amalgamating corporation for approval by special resolution of the members (or depending on the subject matter of the amendments and if there is more than one class of members, by each class of members).

Subsection 205(1) of the NFP Act provides that each corporation proposing to amalgamate shall enter into an agreement setting out the terms of the amalgamation and in particular, setting out (a) the provisions that are required to be included the articles and by-laws; (b) the name and address of each proposed director of the amalgamated corporation; (c) the manner in which the memberships of each amalgamating corporation are to be converted into memberships of the amalgamated corporation; (d) whether the by-laws of the amalgamated corporation are to be those of one of the amalgamating corporations and if not, a copy of the proposed by-laws; and (e) details of any arrangements necessary to perfect the amalgamation and to provide for the subsequent management and operation of the amalgamated corporation.

Additional rules regarding membership approval are found below.

  • Each member has the right to vote on the agreement, even if not otherwise entitled to vote (refer to section 206(3) of the NFP Act). However, the NFP Act does not require that the non-voting classes vote separately. In other words, it is possible for the articles to require the non-voting members to vote together with the voting members in approving a long form amalgamation.
  • The members of each class of members of an amalgamating corporation are entitled to vote separately as a class if the amalgamation agreement contains a provision that, if contained in the articles, would entitle the members to vote as a class (see Amending articles).

Short form amalgamation

In the cases below, it is possible to amalgamate by way of a short form amalgamation.

Vertical short form amalgamation

This form of amalgamation can be used to amalgamate a parent corporation and one or more of its subsidiaries. The following requirements will need to be met:

  • all memberships in each amalgamating subsidiary corporation must be held by one or more of the other amalgamating corporations
  • the resolutions to approve the amalgamation must provide that the memberships in each amalgamating subsidiary corporation be cancelled without any repayment of capital in respect of those memberships
  • the articles of amalgamation of the amalgamated corporation must be the same as the articles of the amalgamating parent corporation, except for the corporate name
  • in cases where it is intended that the articles be different, Form 4004 – Articles of Amendment (see Federal incorporation forms) will have to be filed either:
    • before the amalgamation to amend the articles of the amalgamating subsidiary corporation whose memberships are not cancelled, or
    • after the amalgamation to amend the articles of the amalgamated corporation.

Horizontal short form amalgamation

This form of amalgamation can be used to amalgamate two or more wholly-owned subsidiaries of one corporation. In such cases, the following requirements must be met:

  • the memberships in all but one of the amalgamating subsidiary corporations must be cancelled without any repayment of capital in respect of those memberships
  • the articles of amalgamation of the amalgamated corporation must be the same as the articles of the amalgamating subsidiary corporation whose memberships are not cancelled, except for the corporate name
  • in cases where it is intended that the articles be different, Form 4004 – Articles of Amendment (see Federal incorporation forms) will have to be filed either:
    • before the amalgamation to amend the articles of the amalgamating subsidiary corporation whose memberships are not cancelled, or
    • after the amalgamation to amend the articles of the amalgamated corporation.

As long as these conditions are met, neither type of short form amalgamation requires an amalgamation agreement. Further, a short form amalgamation does not require membership approval. Instead, the amalgamation is approved by resolution of the directors of each corporation.

In order to amalgamate:

  • each corporation and the amalgamated corporation must be able to pay its liabilities as they become due
  • the realizable value of the amalgamated corporation's assets must not be less than the aggregate of its liabilities
  • no creditor will be prejudiced by the amalgamation
  • adequate notice must have been given to all known creditors of the amalgamating corporations and no creditor objects to the amalgamation other than on grounds that are frivolous or vexatious.

With respect to providing notice to creditors, the NFP Act requires that:

  • notice be given to each creditor with a claim exceeding $1,000
  • notice must be published once in a newspaper published or distributed in the place where the corporation has its registered office, and
  • each notice names the corporation(s) with which the corporation intends to amalgamate, and indicates that a creditor can object to the amalgamation within thirty (30) days from the date of the notice.

To obtain a certificate of amalgamation to create one corporation, an application must be made to Corporations Canada. For more information, see Amalgamating not-for-profit corporations.

When the certificate of amalgamation is received by the applicant corporation, post-amalgamation resolutions should be prepared and passed by the directors and possibly the members for the amalgamated corporation, in much the same way as organizing resolutions for a newly-incorporated corporation.

Continuance (import and export)

The NFP Act permits corporations to remove themselves from the governance of the NFP Act and be continued under the laws of another jurisdiction. Similarly, the NFP Act permits corporations formed under other jurisdictions to be continued under and governed by the NFP Act. The original home jurisdiction of the corporation is referred to as the "exporting jurisdiction" and the new jurisdiction is referred to as the "importing jurisdiction." While a common reason for continuance is to clear the way for an amalgamation (since both amalgamating corporations must be governed by the same law), it could be desirable for other reasons.

Importing

When a corporation that is incorporated under another jurisdiction wishes to become governed by the NFP Act, it must apply to Corporations Canada for continuance to bring the corporation under the federal jurisdiction (refer to section 211 of the NFP Act). It is possible to import a corporation as long as the continuance is authorized and approved in accordance with the laws of the exporting jurisdiction and the corporation satisfies the requirements of the NFP Act.

If the corporation is a share capital corporation, it must establish the terms and conditions under which it will be converted to a non-share capital corporation before applying for continuance. For more information on how to apply for continuance and to obtain a certificate of continuance, see Continuance (import) of a not-for-profit corporation.

Once the certificate of continuance has been issued, the NFP Act will apply to the corporation as if it had been incorporated under the NFP Act and the home jurisdiction statute will no longer apply.

Exporting

A corporation incorporated under the NFP Act could wish to become governed by the laws of another jurisdiction and to continue under the corporate legislation of that jurisdiction (refer to section 211 of the NFP Act). A corporation can apply to be continued under the laws of another jurisdiction if its members authorize this action by special resolution and if it establishes to the satisfaction of Corporations Canada that the proposed continuance will not adversely affect creditors or members of the corporation. The resolution authorizing the continuance can permit the directors to abandon the continuance at a future date. Additional rules regarding membership approval are the following:

  • each member has the right to vote on the export continuance, even if not otherwise entitled to vote. However, the non-voting membership classes do not have the right to vote separately as a class to approve an export continuance even if a right protected under the NFP Act (see Amending articles) is affected as a result of the export continuance (refer to section 199(1) of the NFP Act), and
  • the NFP Act does not give separate class voting rights to membership classes in approving an export continuance.

A corporation will not be permitted to continue as a body corporate under the laws of another jurisdiction unless those laws provide that:

  • the property of the corporation continues to be the property of the body corporate
  • the body corporate continues to be liable for the obligations of the corporation
  • an existing cause of action, claim or liability to prosecution is unaffected
  • any civil, criminal or administrative action or proceeding pending by or against the corporation can be continued by or against the body corporate, and
  • any conviction against, or ruling, order or judgment in favour of or against, the corporation can be enforced by or against the body corporate.

In addition, Corporations Canada must be satisfied that the continuance will not adversely affect the members and creditors. An application for a letter of satisfaction must be made to Corporations Canada. This letter can then be submitted to the importing jurisdiction.

When Corporations Canada receives notice that the corporation has been continued into another jurisdiction, it will issue a certificate of discontinuance, dated retroactively to the effective date of the importing jurisdiction's certificate of continuance. The NFP Act will cease to apply to the corporation on the date shown in the certificate of discontinuance. For more information, see Policy on continuance (export) of a not-for-profit corporation.

Sale, lease or exchange of the corporation's property

The sale, lease or exchange of all or substantially all of a corporation's property outside the ordinary course of the corporation's activities (that is, not as part of the ordinary day-to-day activities of the corporation) requires the approval of the members by special resolution. In approving such a transaction, the members can also impose additional terms and conditions.

All members will have the right to vote on the proposed transaction, including members who do not usually have voting rights. If a corporation has more than one class of members and the proposed transaction affects the rights of a class in a manner different from the members of another class, then separate approval by special resolution must be obtained from the affected class of members who are entitled to vote separately to approve the transaction.

If the directors intend to abandon a transaction that has been approved by the members, further member approval will be required, unless the members have already provided pre-approval to authorize the directors to abandon the transaction at a future date (refer to section 214 of the NFP Act).

Reorganizations

It is possible for a corporation to undergo a "reorganization" pursuant to a court order (refer to section 215 of the NFP Act). The court order can be a consequence of:

  • another court order resulting from an oppression remedy brought by the members
  • another court order made as a result of a proposal made under bankruptcy legislation or
  • a court order made under any other federal statute that affects the rights among the corporation and its members and creditors.

Such a court order can also:

  • require amendments to the articles or by-laws that can lead to a fundamental change to the corporation under section 197 of the NFP Act
  • authorize the issuance of debt obligations and fix their terms or
  • appoint directors in place of or in addition to all or any of the directors then in office.

After a court order has been made, the corporation will need to file Form 4013 – Articles of Reorganization (see Federal incorporation forms) and other related documents with Corporations Canada, which will then issue a certificate of amendment. The reorganization becomes effective on the date shown on the certificate of amendment.

Arrangements

Where it is not practicable to make a fundamental change under any other provision of the NFP Act, it can be possible to undergo an "arrangement", with the assistance of the court (refer to section 216 of the NFP Act). Examples of arrangements include:

  • an amendment of the corporation's articles
  • an amalgamation with another body corporate, especially if the other corporation is not under the jurisdiction of the NFP Act
  • liquidation and dissolution
  • transfer of all or substantially all of the corporation's property to another entity, in exchange for money or other property, including shares, memberships or debt obligations of that entity.

The judicial side of arrangements generally consists of two parts with distinct purposes: the interim hearing and the final hearing. An applicant corporation begins the court proceedings by making an application to the court for an interim order, the main purpose of which is to approve the rules for calling, holding, and conducting a meeting of the applicant's members and any other necessary parties.

On application to the court for an interim order, the court can make any order it thinks appropriate, although the order will generally address the following matters:

  • information and notice requirements for calling meetings of members and holders of debt obligations
  • class voting requirements, if applicable
  • quorum requirements
  • the levels of approval required from each class or group of members and holders of debt obligations (including any appropriate "majority of minority" approval requirements)
  • notice requirements in connection with the final hearing to approve the arrangement.

Notice of the court application for the interim order will need to be provided to Corporations Canada no less than five (5) days before the hearing. This notice should include the following documents:

  • all affidavit materials being filed with the court, in final or final draft form
  • draft form of notices of meetings to members and holders of debt obligations
  • draft information circular describing the proposed arrangement
  • draft plan of arrangement and
  • the most recent financial statements of the applicant corporation, if they are not part of the information circular.

To apply for a final order approving the arrangement, the applicant must return to court (following the court-ordered meeting described above), with evidence that its members and any other necessary parties have approved the proposed arrangement.

Notice of the court application for the final order must also be provided to Corporations Canada no less than three (3) days before the final hearing. This notice should include the following documents:

  • the report on attendance and quorum at each meeting called to approve the arrangement
  • the report of the results of ballots conducted at each meeting to approve the arrangement (including separate tabulation of voting demonstrating any required "majority of minority"  approvals (refer to the paragraph below))
  • the issued interim order
  • the draft final order.

Majority of Minority approval requires at least 50% plus one vote of the total votes cast by the members, excluding those members who are related to the interested parties to the transaction or to the issuer (for ex., a particular member, or group of members, can stand to benefit in a way that the remaining members do not, such as by owning the land being purchased).

As soon as possible, thereafter, final copies of all materials filed with the court should be filed with Corporations Canada. Note that Corporations Canada is entitled to appear and be heard on the application at both the interim and final hearings.

After a final court order has been made, the corporation will need to file Form 4014 – Articles of Arrangement (see Federal incorporation forms) and other related documents with Corporations Canada, which will then issue a certificate of arrangement.

Dissolution

Dissolution is the legal termination of a corporation. In other words, dissolution is the act of ending a corporation's existence.

Voluntary dissolution

At some point in a corporation's life, the directors or members can decide that it should be dissolved voluntarily. (Note that if the corporation has more than one class or group of members, each class or group must approve the dissolution by special resolution. Further, members who otherwise would not have the right to vote are permitted to vote on whether or not to dissolve the corporation.) A voluntary dissolution can take place, with the appropriate approvals, in the following circumstances:

  1. if a corporation has not issued any memberships, it can be dissolved at any time by resolution of all of its directors (refer to section 220 of the NFP Act)
  2. if a corporation has issued memberships, but has no property and no liabilities, it can be dissolved by special resolution of the members
  3. if a corporation has already disposed of its property or liabilities, it can be dissolved by special resolution of the members
  4. if a corporation still has property or liabilities, the following procedure can be followed (refer to section 221 of the NFP Act):
    • the directors or a member who is entitled to vote at an annual meeting of members can make a proposal for the voluntary liquidation and dissolution of the corporation
    • the notice of the meeting of members at which the dissolution is to be proposed must set out the terms of the proposal
    • the decision to dissolve must be adopted by a special resolution of the members or if it has more than one class of members, by special resolution of each class or group, whether or not the members otherwise have the right to vote
    • the corporation then sends Form 4019 – Statement of Intent to Dissolve (see Federal incorporation forms) to Corporations Canada. Upon receipt of this statement, Corporations Canada will issue a certificate of intent to dissolve and
    • following the issuance of the certificate of intent to dissolve, the corporation stops normal operations and proceeds to liquidate by completing the following steps in the order set out:
      1. notify each known creditor that a certificate of intent to dissolve has been issued
      2. taking reasonable steps to give public notice in each province in which the corporation was carrying on its activities at the time it sent Form 4019 – Statement of Intent to Dissolve (see Federal incorporation forms) to Corporations Canada
      3. liquidating the corporation by collecting (gathering together) its property, transferring property (refer to section 234 of the NFP Act) and converting any property not to be transferred or distributed in kind into money, and discharging all its liabilities
      4. distributing its remaining property, either in money or in kind, in accordance with the requirements of the NFP Act (refer to sections 235 and 236 of the NFP Act).

Once the above steps have been completed, the corporation prepares and files Form 4017 – Articles of Dissolution (see Federal incorporation forms) with Corporations Canada. Upon receipt of Form 4017 – Articles of Dissolution, Corporations Canada will issue a certificate of dissolution. The corporation ceases to exist on the date shown in the certificate of dissolution.

If a corporation is a registered charity under the Income Tax Act, or a soliciting corporation, or it has received more than $10,000 in public money in a single financial year within the five years before the distribution of property remaining on liquidation after the discharge of any liabilities of the corporation, then the corporation's articles must provide that its net assets are to be distributed to one or more qualified donees, as defined in the Income Tax Act. For all other corporations, assets must be distributed in accordance with the articles or among the members if the articles are silent on this issue (refer to sections 235 and 236 of the NFP Act and section 37 of the Canada Not-for-profit Corporations Regulations (NFP Regulations)).

An interested party (for ex., director, member, creditor) can apply to have the liquidation and dissolution supervised by the court.

Administrative dissolution by Corporations Canada for non-compliance with the NFP Act

Corporations Canada can also issue a certificate of dissolution and dissolve a corporation on its own initiative under the following circumstances:

  • the corporation has not commenced its activities within three years after the date shown in its certificate of incorporation (refer to subparagraph 222(1)(a)(i) of the NFP Act and subsection 32(1) of the NFP Regulations)
  • the corporation has not carried on its activities for three consecutive years
  • the corporation is in default for a one-year period in sending to Corporations Canada any fee, notice or other document required by the NFP Act, or
  • the corporation does not have any directors.

Before dissolving the corporation, Corporations Canada must give notice of its intent to dissolve to the corporation and to each of its directors. This notice will also be published in Monthly transactions.

Unless Corporations Canada receives satisfactory information explaining why the corporation should not be dissolved, Corporations Canada can, after the expiry of 120 days of giving notice, issue a certificate of dissolution (refer to subsection 222(3) of the NFP Act and subsection 32(4) of the NFP Regulations).

There is an exception to the administrative dissolution procedure when the required fee for the issuance of a certificate of incorporation has not been paid. In such cases, Corporations Canada can administratively dissolve a corporation without notice (refer to subsection 222(4) of the NFP Act).

Involuntary dissolution by court order

The NFP Act also provides for the involuntary dissolution of a corporation by court order on several grounds. The Director or any interested person can apply to a court for an order dissolving a corporation if the corporation has:

  • failed to hold annual meetings of members as required by the NFP Act
  • contravened certain requirements of the NFP Act, such as undertaking activities not permitted by the articles; not providing members access to the corporations' records; or not providing financial statements to the members (refer to subsection 223(1) of the NFP Act, listing non-compliance with subsection 17(2), and sections 22, 23, 174 and 175, of the NFP Act) or
  • obtained any certificate under the NFP Act by misrepresentation (refer to subsection 223(1) of the NFP Act, listing non-compliance with subsection 17(2), and sections 22, 23, 174 and 175, of the NFP Act).

In addition, a court can order the dissolution and liquidation of a corporation on the application of a member in certain circumstances, such as when the actions of the corporation are oppressive or unfairly prejudicial to the interests of any member, creditor, officer or director or these actions cause such a result (refer to subsections 223(1) and 224(1) of the NFP Act, listing non-compliance with subsection 17(2), and sections 22, 23, 174 and 175, of the NFP Act). Of particular note, the NFP Act includes a faith-based defence which provides that a court might not make an order if the court is satisfied that:

  • the corporation is a religious corporation
  • the act or omission, or conduct or the exercise of powers is based on a tenet of faith held by the members of the corporation, and
  • it was reasonable to base the act or omission, the conduct or the exercise of powers on the tenet of faith, having regard to the activities of the corporation.

In such cases of involuntary dissolution, the court can make any order it thinks fit in connection with the liquidation or the dissolution of the corporation, including appointing a liquidator and directing that notice be given or payments made to identified parties. If the court makes an order for the liquidation of a corporation, the corporation continues in existence but ceases its activities except those that are, in the opinion of the liquidator, required for an orderly liquidation. In addition, the powers of the directors and members cease and are instead vested in the liquidator (refer to subsection 229(1) of the NFP Act).

It should be noted that the court can appoint any person, including a director, officer or member as liquidator for the corporation (refer to subsection 230(1) of the NFP Act). Once the liquidation process is complete, and the liquidator has submitted its final accounts, which have been approved by the court, the court will order Corporations Canada to issue a certificate of dissolution.

For more information on dissolving a corporation, see Dissolving a not-for-profit corporation.

Effect of fundamental changes and dissolution on registered charitable status under the Income Tax Act

Depending on the nature of the fundamental changes undergone by a corporation that is also a registered charity under the Income Tax Act (Canada), its charitable status could be affected. Corporations that are registered charities will need to notify the Charities Directorate of the Canada Revenue Agency of any fundamental changes, some of which might even require the approval or pre-approval of the Charities Directorate.

Examples of changes that do not require Charities Directorate approval could include amending a corporation's articles to change the authorized number of directors or the province in which the registered office is located. However, the Charities Directorate must still be provided with a copy of the certificate of amendment, with the amended Form 4004 – Articles of Amendment (see Federal incorporation forms) attached.

Although an amendment to the statement of purpose of the corporation that is contained in its articles does not technically require the pre-approval of the Charities Directorate, it is important for the corporation to obtain approval of its new statement of purpose from the Charities Directorate, in order to maintain its charitable status. For this reason, it is sometimes advisable to obtain pre-approval from the Charities Directorate before revising the articles with Corporations Canada, rather than dealing with the Directorate's requirements after the fact.

Another example of a situation in which it might be necessary to obtain the pre-approval of the Charities Directorate is when a corporation is beginning a voluntary dissolution. In this case, the corporation will need to voluntarily surrender its charitable status to the Charities Directorate before commencing the dissolution.

In cases where a charitable corporation is to be amalgamated with another corporation, the pre-approval required and the type of notification that must be given to the Charities Directorate depend on a number of factors, including whether the other amalgamating corporation is also a registered charity, and whether the statement of purpose of the amalgamated corporation will be the same as, or different from, the amalgamating corporation(s) that are registered charities at the time of the amalgamation.

Incorporated charities are required to maintain their corporate status. This means that, if a corporation is dissolved (for ex., dissolved by Corporations Canada for non-compliance or by the Court), this will lead to the loss of charitable status.

If a corporation wishes to dissolve voluntarily, it could be necessary to seek the permission of the Charities Directorate to voluntarily revoke its charitable status in advance of or at the same time as its dissolution.

In cases where a charitable corporation is able to foresee that it will be undergoing fundamental changes under the NFP Act, it would be prudent for the corporation to contact the Charities Directorate, in advance, to ascertain the implications of these changes with regard to their charitable status, as well as to determine whether any approval is required from the Charities Directorate, and what the process is for obtaining such approval.

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