On May 14, 2015, Bill 24 – 2015: Societies Act (the “Societies Act”), received Royal Assent.1
Building upon the basic framework of the current Society Act [RSBC 1996] Chapter 443, the new Societies Act creates a number of changes including an increase in the level of accountability required of charities and publicly funded societies while offering greater flexibility to not-for-profit societies seeking a governance structure more suited to their specific needs. This article examines these changes and more as proposed under the Societies Act.
In Force
It is predicted that the Societies Act will come into force sometime in November 2016. Once the Societies Act finally does come into force, pre-existing societies will have two years to transition under the new Act.
In order to make the transition, an application will have to be filed which conforms to prescribed constitution and bylaws requirements.
Remedies – From Seeking a Remedy to Reporting Misconduct
The Societies Act allows members to apply to court for a remedy in light of oppressive conduct or unfair treatment against the member or his/her fellow members. While the previous Society Act allowed members to directly seek a remedy if the society was acting in a fraudulent or unlawful manner, under the Societies Act it will be the Minister who will have the authority to investigate a society if a society is reported to have been conducting its activities with the intent to defraud a person, act unlawfully, or carry on activities that are detrimental to the public interest.
Governance Procedures – Greater Flexibility
The Societies Act adopts a number of new governance concepts which are similar to those found in the Business Corporations Act [SBC 2002] c. 57. The governance procedures applicable to societies under the new Societies Act include the following:
- the default threshold for passing a special resolution is reduced from three-quarters to two-thirds (unless otherwise provided for by the bylaws);
- proxy voting is available at the meetings of members (if permitted by the bylaws);
- members who hold five percent or more of the voting membership may bring forward proposals to be considered at an annual general meeting;
- multiple classes of membership may be created, including non-voting membership classes, provided that there is at least one voting class of members (a prohibition in the current Society Act with respect to the number of non-voting members outnumbering the voting members is removed);
- members in general meetings may participate by telephone or other communication medium;
- general meetings may be held outside of British Columbia under certain conditions;
- directors are required to confirm their appointment by written consent if they are not in attendance at the meeting in which they were appointed to be a director;
- record keeping obligations are clarified as well as who has access to such records; and
- senior managers may be appointed and may manage the activities of the society by acting with the authority of directors
Charities and Publicly Funded Societies – An Increased Burden
Charitable societies and those which receive significant public funding will continue to be subject to the current requirements of the Society Act with respect to financial statements, distributions on dissolution, and the number of directors. In addition however, the new Societies Act increases accountability measures to which such non-member-funded societies (i.e. charities and publicly funded societies) will be subject, including:
- a majority of directors must not be entitled to receive remuneration from the society under contracts of employment or service (note: this does not apply to pre-existing societies until two years after the new Societies Act comes into force);
- requiring that the distribution of assets on dissolution/liquidation be limited to certain “qualified recipients” such as other non-member-funded societies, charitable entities, or community service cooperatives (note: a society can now designate a qualified recipient by directors’ resolution if a members’ resolution is not feasible);
- requiring that the public disclosure of the compensation received by the society’s directors and highest paid employees; and
- the continued requirement that non-member-funded societies have at least three directors, with at least one of the three directors being ordinarily resident in British Columbia; and
- requiring that the financial statements of the society be disclosed to members of the public upon request.
Member-Funded Societies – A Reduced Burden
The Societies Act reduces the obligations of member-funded societies (i.e. those societies which do not receive public donations or government grants) when it comes to accountability. For example, as opposed to publicly-funded societies, member-funded societies are not obligated to provide the public with access to their financial statements.
Member-funded societies, a common example being sports clubs, will be able to:
- distribute assets on liquidation to its members;
- be able to have only one director (and will not be subject to any director residency requirements); and
- will not be required to report on the remuneration of its directors, employees, or contractors.
Miscellaneous Changes
Other changes proposed by the new Societies Act include:
- implementing a mandatory online filing system for incorporation, bylaw changes, and other filing at the corporate registry;
- specifying the requirements to be a director (e.g. cannot be an undischarged bankrupt);
- removing the requirement for court approval to be obtained prior to receiving director indemnity payments;
- removing the requirement for member approval for the borrowing of money and the issuance of debt obligations, unless restricted by a society’s bylaws;
- allowing societies to change previously unalterable provisions in a society’s bylaws or constitution by special resolution;
- requiring that the disclosure of a material interest by a director in a contract or transaction contemplated by a society be evidenced in the records of the society and that the disclosing director abstain from voting on the matter and withdraw from any meeting where the matter is discussed;
- removing the ability of societies to create branch/offshoot societies;
- allowing the creation of a corporation (including a society) controlled by a society known as a subsidiary; and
- if a member or a debt holder for the society of a society that has a subsidiary requests a copy of the subsidiary’s most recent financial statement and pays the prescribed fee, the society must provide the member with a copy of those financial statements.
Conclusion
The changes to the Society Act will offer greater flexibility in terms of governance and will reduce administrative burdens on member-funded societies while non-member-funded societies will be held to a higher standard of accountability.
If you are a pre-existing society and desire assistance with transitioning under the new Societies Act, or you are looking to form a new society and have questions, the lawyers at Pushor Mitchell LLP are here to help.
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1For a copy of Bill 24, please visit the Legislative Assembly of British Columbia’s website: Bill 24
This article was written by Brian Stephenson, an articling student currently working in our Business Law Group.