What the New Societies Act Means for Existing Societies
|This information applies to British Columbia, Canada. Last reviewed for legal accuracy by Mary Childs, Michael Blatchford and Steve Carey in November 2016.|
A new law governing how non-profit societies in British Columbia are created and run came into effect on November 28, 2016. This section covers five key ways the new Societies Act affects existing societies.
You need to "transition", but the new Act applies right away
All societies in BC are required to "transition" under the new Societies Act by filing an application in a new electronic system called Societies Online. Societies have a two-year period, until November 28, 2018, to file this application.
When a society files its transition application does not affect when the new regime applies. The new law applies to all pre-existing societies as of when the law came into force on November 28, 2016.
One result is that any provision in a society's bylaws that is inconsistent with the new Act has no effect. The matter is governed by the new Act.
Three things you absolutely must know about transition:
1. The new rules apply to your society as of November 28, 2016 whether or not your society has "transitioned".
What does transitioning involve?
The transition process features filling out a form and uploading documents on the Corporate Registry's system, Societies Online.
The key documents are your society's constitution and bylaws, which will need to be rearranged to meet the Registry's requirements. A society that rearranges its constitution and bylaws as required but makes no other amendments to its bylaws can complete the transition application without requiring member approval.
Optionally, societies can revise their bylaws as part of the transition process. Societies may wish to do this to update bylaws that are in conflict with the new Act, or to take advantage of increased flexibility offered by the new Act. A society that revises its bylaws as part of transitioning will need to have the changes approved by a special resolution of members.
See the section "Preparing for Transition" for more detail on the transition process. "Reviewing Your Society's Bylaws" takes you through the steps of conducting a bylaw review, and "Filing a Transition Application" features a walkthrough of the filing process.
What if you don't transition right away?
After November 28, 2016, a pre-existing society will not be able to do the following until it transitions:
- The society will not be able to amend its constitution or bylaws.
- The society will not be able to amalgamate.
- The society will not be able to become a member-funded society (this new designation is explained below).
A pre-existing society will still be able to make the filings required to change their registered office or directors, and to file annual reports following an annual general meeting.
What if you don't transition within the two-year window?
A pre-existing society must file its transition application within the two-year window after the new Societies Act came into force. The resulting deadline is November 28, 2018. If a society doesn't file its transition application by this date, it would be considered to be in default of a requirement under the Act and at risk of being dissolved by the Corporate Registry.
Your society's constitution may be affected
As part of the process to transition under the Societies Act, your society's constitution may need to be rearranged - carefully.
On transition, your constitution must consist of only the society's name and purposes - which cannot be changed.
The Corporate Registry requires that any provisions in a society's constitution other than the name or purposes of the society must be moved to the society's bylaws on transition. For example, a society may have a provision in its constitution about remuneration of board members or about the disposition of its assets on dissolution. These provisions must be moved to the bylaws on transition.
If the constitution has "unalterable provisions"
Many societies have constitutional provisions that are designated as "unalterable" - that is, provisions that can't be changed. For example, a society may have a provision restricting its activities to a certain geographic area, and have designated that provision as unalterable. Or at the request of a funder, a society may have designated as unalterable provision dealing with disposition of its assets on dissolution.
On transition, any such "unalterable" provisions in a society's constitution - other than the name or purposes of the society - must be moved to the society's bylaws, and must be identified as having been "previously unalterable". These provisions cannot be changed on transition.
For further details, including an example of how this requirement can be handled, see the section on "Preparing for Transition".
Changing "previously unalterable provisions"
Once a society has transitioned, any previously unalterable provisions that have been moved to the society's bylaws can be altered by a special resolution of members. Unless the society's bylaws provide for a higher voting threshold, a special resolution requires 2/3 of votes cast at a members' meeting.
The result is that after transition, for many societies, a previously unalterable provision could be changed by 2/3 of those voting.
Flexibility in the new Act relating to special resolutions can be used to offset this result. In its bylaws, a society can provide a higher voting threshold of up to 100% of voting members. The higher threshold can apply generally or be set for specific special resolutions. After transition, a society could choose to require a threshold of 100% of voting members to change a bylaw provision that was previously unalterable. The society could at the same time choose to retain the default threshold of 2/3 of the votes cast for other bylaw amendments.
Finally, note that certain societies will need the written consent of government officials to alter previously unalterable provisions. These societies include:
- recipients of sales tax or other government revenue
- recipients of loans or grants from BC Housing
- community care facility service providers
Some societies have unalterable provisions in their constitution in order to preserve the charitable status of the society. If you have any doubt about whether making changes to previously unalterable provisions will adversely affect the society's charitable status, you should seek legal advice.
Your society's bylaws should be reviewed for compliance with the new Act
When the new Societies Act came into force on November 28, 2016, any provision in a society's bylaws that is inconsistent with the new Act ceased to have effect. The matter is governed by the new Act.
Most organizations have at least some bylaws that are inconsistent with the new Act.
As well, the new Act presents opportunities for societies to adopt bylaw changes in areas where the new law offers increased flexibility. The section "Reviewing Your Society's Bylaws" discusses options in conducting a bylaw review and key clauses to consider in the review.
One option available to societies in transitioning under the new Societies Act is to adopt a new set of bylaws entirely. The new set could be the model bylaws found in Schedule 1 of the Societies Regulation, with or without amendments. These model bylaws contain basic clauses that align with the new Act. See the section "Reviewing Your Society's Bylaws" for more on the model bylaws.
You need to decide whether to become a member-funded society
On transition, a society will be asked whether it wishes to designate itself as a member-funded society. A member-funded society is one that is funded primarily by its members to carry on activities for the benefit of its members. Examples of societies that might meet this designation are private clubs, sports leagues, and professional associations.
Member-funded societies are exempt from several public transparency provisions which apply to other societies:
- they don't have to provide public access to annual financial statements
- they are not required to disclose director or employee remuneration
As well, member-funded societies have more flexibility in their governance structure and can distribute their assets to their members on dissolution.
|Item||Member-funded society||Other societies|
|Number of directors||1 director is sufficient||At least 3 directors|
|Residency of directors||No residency requirement||1 director must be resident in BC|
|Composition of board of directors||No restrictions on number of directors employed or contracted by society||Majority of directors must not be employed or under contract with society (effective in 2018)|
|Distribution of assets on dissolution||Assets can go to members||Assets can only go to certain types of qualifying societies or registered charities|
|Conversion to a company||Can be converted to a company||Cannot be converted to a company|
To become a member-funded society
To become a member-funded society, a society must meet a qualification test and get the approval of its members in a special resolution. The test to qualify as a member-funded society has two parts:
- Part 1, excluded societies: The society cannot be from a list of excluded societies. Excluded societies include registered charities, student societies, hospital societies, recipients of sales tax or other government revenue, recipients of loans or grants from BC Housing, community living support service providers, and independent schools. If a society is any one of these, it can't qualify as a member-funded society.
- Part 2, funding test: The society's funding from public donations and government sources must be below a certain threshold. In the two-year financial period before the current one, the society must either:
- have received $20,000 or less in public donations and government funding, or
- if the society received more than $20,000 in public donations and government funding, the amount must have been less than 10% of the society's gross income.
Issues to consider in deciding to become a member-funded society
If a society decides that it meets the two-part qualification test and is eligible to be a member-funded society, it must determine whether or not it wishes to be designated as one.
A significant issue is that a member-funded society cannot be a registered charity.
Use the Charities Listings search on the Canada Revenue Agency website to find organizations that are or have been registered as a charity with the CRA.
Other issues to consider include:
- Funding limitations: The society must stay under the specified threshold for public donations and government funding in order to retain its status as a member-funded society. As well, the society could be disqualified from receiving certain types of government funding. For example, the BC Gaming Policy and Enforcement Branch has indicated that it will not give community gaming grants to member-funded societies.
- Tax-exempt status: The taxable income of a non-profit society is exempt from tax, as long as the society meets certain conditions. One of the conditions is that the society must not distribute any of its income for the personal benefit of a member. Yet one of the potential advantages of becoming a member-funded society is the ability to distribute assets to members on dissolution. Before becoming a member-funded society, it is important to consider how this feature might impact the society's tax-exempt status.
- Timing of becoming a member-funded society: If a society doesn't adopt the member-funded society designation on transition, it will need a court order to do so later.
If you have any doubt about whether your society can or should become a member-funded society, you should seek legal advice before transitioning.
There's a new electronic filing system
With the new Societies Act, there is a new electronic filing system, Societies Online. The majority of filings are self-serve and immediate. It should be easier to file annual reports and update information such as the name and address information for your society's directors.
With the new electronic filing system, there are online forms to complete when your society alters its constitution or bylaws. Special resolutions no longer need to be filed with the Registrar.
Some low volume, complex filings remain as paper filings, such as an amalgamation application.
|Transitioning an Existing Society: A How-to Guide for Non-profits in BC © Drew Jackson is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 2.5 Canada Licence.|