Legal Issues for Not-For-Profits

Legal Issues for 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 noncharitable 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 Comparison Charitable 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 Labrador Statutory 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