Member-Funded Societies (Societies Act FAQs)
|This information applies to British Columbia, Canada. Last reviewed for legal accuracy by Pacific Legal Education and Outreach Society (PLEO) in May 2021.|
What is a member-funded society?
A member-funded society is a special subset of non-profit societies. Incorporating as member-funded will be unusual for most groups of people who want to get together to do something to benefit the community. A member-funded society exists primarily for the benefit of its members. Some examples include golf courses or private benevolent organizations. Just because the non-profit is primarily funded by its members does not mean that the non-profit should incorporate as member-funded. Only non-profits that are certain they will likely never receive sources of funds from anyone other than their members should consider doing so.
In its constitution, the member-funded society must declare: “This society is a member-funded society. It is funded primarily by its members to carry on activities for the benefit of its members. On its liquidation or dissolution, this society may distribute its money and other property to its members.”
What kinds of non-profits cannot become member-funded societies?
Non-profits that cannot become member-funded societies include:
- non-profits that have received public donations, government funding, or a combination of the two with a total value greater than $20,000 or 10%, whichever is greater, of the non-profit’s gross income within a period of two financial years immediately preceding the current financial year of the non-profit;
- non-profits that are registered charities as defined in the Income Tax Act;
- non-profits that are designated recipients of the Provincial Sales Tax Act or are otherwise entitled to receive taxes, fees, or other revenue received by the government as agents of the non-profit;
- are student societies as defined in the College and Institute Act or University Act;
- are hospitals or manage/operate a community care facility as defined in the Hospital Act, or that are designated as hospital societies;
- are in a class of non-profits that is prohibited under the regulations from having the statement in its constitution.
If you still have questions, the Registry has a useful table on page four of their Transition Guide that explains some differences between member-funded and non-member-funded societies: BC Registry Transition Guide.
|Topic||Member-funded Societies||Other Non-Profit Societies|
|Distribution of assets on winding up||No restrictions; assets could go to members||Assets can only be distributed to certain entities (e.g. non-member-funded societies, registered charities, or community service cooperatives)|
|Number of directors||One director is sufficient; no residency requirements||At least three, one of whom is ordinarily resident in BC|
|Composition of board of directors||No restrictions on number of directors who are employed by or under contract with the non-profit||Majority of directors must not be employed by or be under contract with the non-profit|
|Financial statements||No public right to copies||Public has right to obtain copies|
|Disclosure of remuneration||Not required||Financial statements must set out remuneration paid to directors and highly-paid employees and contractors|
|Conversion to company||Can convert||Cannot convert|
source: BC Registry Services, "Preparing for B.C.'s New Societies Act: A Guide to the Transition Process"
How do we decide whether to become a member-funded society?
Member-Funded Society – A Challenging Choice (by Paul Wood)
As Chair of the Governance Committee of a non-profit serving a reasonably sophisticated community, working our way through a Constitution and Bylaw review, thoughts turned to Part 12, Division 1 of the Societies Act, which provides for member-funded societies.
A member-funded society is a non-profit that is funded primarily by its members to carry on activities for the benefit of its members. Common examples might include some sports clubs, golf courses and professional associations.
This seemed a perfect fit. Although a non-profit cannot be a member-funded society if it receives public donations or government funding beyond specific thresholds, there was a high degree of confidence that this fit our circumstances, until we spoke with a lawyer. Working through the language of the Act and the due diligence necessary to come to a confident conclusion, doubts crept in. Shifting the focus from the due diligence of an historic review of financials, decisions and minutes over at least the past two years, to a view looking forward, and the potential constraints selecting member-funded status might impose on future directions and decision-making, doubts were no longer merely creeping, they were striding confidently.
At this point, it was prudent to step away from thinking solely from the perspective based on first impression, “of course we are member-funded”, to one that turned things around and looked at the decision from the point of view of what does member-funded status achieve. What are the benefits?
Member-Funded Societies Considerations
- s. 28 Financial Statements: no right of access to public
- Is it really appropriate and in the non-profit’s best interests to restrict public access? What are the implications?
- Are there circumstances where public access should take place?
- How will access be policed?
- s. 36 Disclosure of remuneration on Financial Statements: no need to disclose director remuneration or salaries paid to senior staff in notes to financial statements
- Is it appropriate, even in a member-funded society, to not be open and transparent about director remuneration and senior staff salary?
- Shouldn’t the members be entitled to this information?
- s. 40 Number of Directors: only one director required, none need be ordinarily resident in BC
- Clearly this applies to a very small and peculiar set of non-profits.
- s. 41 Employment of Directors: no restriction on number of Board members employed by or under contract
- What are the circumstances or nature of a non-profit where it would be appropriate to have a majority of the board to be employed by, or in a contractual relationship with, the non-profit? Is this in a non-profit’s best interest?
- s. 124(2) Distribution of assets on winding up: the constraints of this section do not apply and distribution can be made to any person specified in the bylaws or by ordinary resolution
- Is it in a non-profit’s best interest that the distribution of its assets on winding up would be subject to an ordinary resolution? Or even a bylaw, subject to change?
- s. 154(2) Property held in joint tenancy: the constraints of this section do not apply and property simply devolves to other joint tenants
- Is it the case now, or is it likely to be the case, that the non-profit holds, or would hold, property in joint tenancy with an entity other than another non-profit (not member-funded) or charity or community service cooperative as defined by the act?
- s. 198 Conversion: can be converted to a company under the Business Corporations Act
- Is this likely to ever be the case?
In the end, in our circumstances, the decision was one of balancing the “real” benefits of member-funded status against the need for proper due diligence in ensuring our non-profit met the detailed tests set up in the act, and the constraints that it would impose on the non-profit in terms of receiving public donations or government funding in the future.
Becoming a member-funded society is a significant choice that needs to be authorized by a special resolution of the members. If you have any doubt about whether your non-profit can or should become a member-funded society, you should seek legal advice before transitioning. Member-funded designation is a choice that must be made at incorporation, otherwise a court order is needed. It is one of the most challenging areas of the Societies Act.
|© Copyright 2016-2021, Pacific Legal Education and Outreach Society.|