Societies Act White Paper: Draft Legislation with Annotations
by Government of British Columbia
Introductory letter from the Honourable Michael de Jong, Q.C., Minister of Finance
As you may be aware, the Ministry of Finance is in the process of developing a new Societies Act. The review commenced in 2009 with a letter to stakeholders seeking general input on issues under the current Act. This was followed by a 2011 Discussion Paper inviting public comment on specific proposals for reform.
This document represents the next stage of consultation in the development of a new Act. The document is in the form of a “White Paper” – a discussion paper that sets out policy recommendations and includes actual draft legislation. Each provision of the proposed new Societies Act appears exactly as it might in a Bill of the Legislature, but is annotated to include important background information, such as the policy intent behind the provision and how it differs from what is in the current Act.
Although the draft legislation in the White Paper is, for the most part, consistent with the proposals contained in the Ministry’s 2011 Discussion Paper, provisions have been refined, and in some cases significantly altered, to address concerns raised during earlier consultations. These changes are also indicated in the annotations.
The draft legislation included in the White Paper does not represent final government policy, but rather is intended to provide another opportunity for stakeholders to see exactly what is being proposed and what a new Act might look like.
All of the provisions of this draft legislation are subject to change as a result of this consultation or otherwise.
Throughout earlier consultations, stakeholders repeatedly requested that the new Act be kept simple and straightforward, so that it could be effectively used by all participants in the non-profit sector, including those without legal counsel. The proposed legislation in the White Paper has been drafted with these concerns in mind.
The draft adopts a user-friendly drafting style that tries to minimize cross-references and “subject to” clauses. More frequently used provisions have been moved to the beginning of the Act, with the more complicated and rarely used processes (such as corporate re-organizations and legal remedies) placed nearer to the end.
The more legalistic and complex Business Corporations Act (BCA) model has not been adopted. Instead, specific provisions of the BCA and other corporate legislation (e.g. administrative restoration, court remedies) have been selected and simplified for use by societies. Largely because of the inclusion of these new corporate procedures, the draft legislation is longer than the current Act. However, most users will need only to refer to the first six Parts (up to section 82) of the Act, which contain the basic rules for the day-to-day operations of most societies.
As you will see, the draft legislation found in this White Paper looks similar to the current Society Act, and maintains the basic framework of the current Act. Societies will continue to have constitutions setting out their purposes, bylaws that are filed at the corporate registry, and restrictions on share capital and distribution of assets. This framework has, however, been updated and supplemented with new provisions that enhance flexibility by providing societies more internal governance options. Each society will have greater ability to use its own bylaws to structure itself in a way that meets its unique needs. At the same time, fundamental accountability provisions (such as the requirement for three directors and the provision of public access to financial statements) have been largely maintained for societies that perform a broader social function and rely on public financial support.
The draft legislation attempts to recognize the unique nature and the broad spectrum of societies across our province and to balance societies’ needs for flexibility with competing concerns for accountability. This White Paper does not, however, deal with the rights of persons who choose to donate to societies or with other aspects of charitable fund raising. While these are important issues, they can be seen to fall outside the scope of a corporate framework statute.
There are approximately 27,000 BC societies, and the non-profit sector plays an increasingly important role in the province by helping to provide services that deliver social, cultural and other programs to the public. My objective in publishing this White Paper is to ensure that any legislative obstacles preventing societies from functioning fully and efficiently are identified before legislation is introduced.
Comments on the White Paper may be made until the end of day, October 15, 2014, and should be directed, in electronic form, to fcsp@gov.bc.ca or mailed to:
Financial and Corporate Sector Policy Branch
Ministry of Finance
PO Box 9418 Stn Prov Govt
Victoria BC V8W 9V1
Please note that the Ministry will be sharing comments it receives with other branches of government, including BC Registry Services, responsible for the administration of the Corporate Registry. Even where confidentiality is requested, freedom of information legislation may require that responses be made available to members of the public who request access.
I look forward to hearing your views on the proposals contained in this White Paper, and thank you in advance for your participation in the development of a new Societies Act.
Sincerely,
Michael de Jong, Q.C.
Minister of Finance
i Summary
The draft legislation found in this White Paper maintains the basic framework of the current Society Act, but updates and supplements that law with new corporate rules and procedures from the Business Corporations Act and other corporate legislation (such as provisions respecting corporate reorganizations and qualifications of directors, and a broad palette of court remedies). As well, proposed new provisions will enhance flexibility for societies by providing them with more internal governance options (respecting matters such as proxy voting, the holding of general meetings and the creation of classes of members) and by removing current restrictions on the exercise of directors’ authority (such as member pre-approval of financial dealings). All of these matters will now be subject to the bylaws, to allow each society to structure itself in a way that meets its particular needs.
The most important policy change is that the new Act distinguishes societies that are “member funded” from the majority of societies that are charities or that otherwise rely on public donations or government funding.
Member funded societies (common examples may include professional societies and golf courses) will be subject to fewer accountability measures as set out in Part 12 of the new Act.
For example, they need have only one director, need not provide public access to their financial statements, and are not subject to the same asset lock on dissolution as ordinary societies (see sections 187 to 197).
This will ease the regulatory burden on privately-funded societies so they can function more efficiently.
Societies that have charitable status or that receive significant public funding will continue to be subject to the current Act’s requirements respecting directors, financial statements and distributions on dissolution. As well, in order to improve accountability and protect the public interest, these societies will be required to have a majority of their directors not employed by or under contract to the society (section 40). They will also be required to publicly disclose the remuneration paid to directors and their highest paid employees and contractors (section 35).
Other key proposals in the draft legislation include the following:
o streamlining processes, by providing for incorporation by one person (section 12) and allowing indemnification and restoration without court order (sections 61 and 155);
o clarifying record-keeping and access to records (sections 19 to 27);
o setting out default governance provisions (Part 6);
o rationalizing distribution rules to prevent assets from being improperly disbursed (section 4) and clarifying directors’ liability for improper payments (section 59);
ii
o providing greater protections for directors, who are often volunteers, including court-ordered relief in legal proceedings (section 103) and a defence for reasonable reliance on expert reports (section 60);
o clarifying that bylaw authorization is needed if directors are to be paid for their services (section 45);
o enhancing accountability by requiring disclosure of loans or other financial assistance (section 36);
o giving societies more flexibility to meet changing needs by enabling unalterable provisions in a society’s bylaws to be altered by special resolution (section 16).
Finally, the draft legislation in this White Paper supports the implementation of a mandatory online filing system for incorporation, bylaw changes and other filings at the corporate registry. Pre-existing societies will be required to “transition” to the new system by inputting their constitution and bylaws into an electronic data
base. As a result, every society will have a perennially updated and searchable set of bylaws.
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