The Minden Brief

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The Minden Brief Fall 2012 TOPICS: WHAT CHANGES SHOULD YOU EXPECT? Canada and Ontario’s New Not-for-Profi t Legislation page 1 CANADIANS AND U.S. REAL ESTATE page 4 TAX PLANNING YOUR WILL - PART 2 page 6 Firm News page 7 Professional Notes page 8 Canada and Ontario’s New Not-for-Profi t Legislation What Changes Should You Expect? he law has drastically changed for the not-for- ONCA and CNCA are modeled on the Ontario profi t (“NFP”) corporation with the enactment Business Corporations Act (“OBCA”) and the of the Canada Not-for-Profi t Corporations Act Canada Business Corporations Act (“CBCA”), (“CNCA”) and the passing of the Ontario Not- respectively, which govern business corporations. This for-Profi t Corporations Act (“ONCA”). CNCA harmonization of the NFP and for-profi t rules will help came into force on October 17, 2011 and it affects clarify areas of the NFP legislation that previously TNFPs incorporated federally. ONCA is expected to lacked certainty, through the reference to settled cases come into force on July 1, 2013 and will affect all NFPs in relation to business corporations. incorporated in Ontario. The following is a selective summary of the more Prior to the enactment of CNCA, federal NFPs were important aspects of both CNCA and ONCA. incorporated under and governed by the Canada Corporations Act (“CCA”). Ontario NFPs are currently incorporated under and governed by the Ontario Corporations Act (“OCA”). Ontario Not-For-Profi t member remedies which are now available through Corporations Act ONCA. These member remedies now include an application for a compliance or a restraining Under ONCA regime, once the Act comes into order by a complainant or creditor, an application force, there is an automatic continuance of existing by an aggrieved party to have the registers or corporations. A corporation will have three years records of a corporation rectifi ed, a dissent and to amend its by-laws to conform to ONCA, appraisal remedy for certain corporations, the after which, the by-laws will be deemed to have ability of a complainant to seek a court order for been amended in accordance with the Minister’s the commencement of a derivative action, and template by-law (not yet published). If the the holder of 10% of the votes may requisition a corporation is newly formed, it will have 60 days meeting of members. after formation to approve a new form of by-law that conforms with the Act, otherwise the Ministry Canada Not-For-Profi t form will apply. Corporations Act ONCA corporations may provide in their articles Under CNCA, every NFP corporation for a minimum or maximum number of directors incorporated under the CCA will have until or a fi xed number of directors, but there is a October 17, 2014 to continue under CNCA, minimum requirement of three directors. failing which, it will be dissolved. Under the ONCA refl ects an objective standard of care CCA, Industry Canada must approve any by-law. as opposed to a subjective standard of care for A CNCA corporation will now have to fi le copies directors and offi cers. The OCA does not speak on of their by-laws with Industry Canada within 12 the subject of standard of care for directors and left months of confi rmation by the members but these the matter to the courts to interpret. This standard by-laws will no longer need to be approved by of care is now in tune with the standard of care Industry Canada. for business corporations found in the OBCA and All CNCA corporations must have a minimum CBCA. of one director. If however the corporation is a The enactment of ONCA also brings clarity soliciting corporation, as defi ned in the Act, it to several areas of director responsibilities that must have a minimum of three directors, at least were not clearly provided for in the OCA. Under two of which must not be offi cers or employees. ONCA, a director must be appointed as the chair It is also necessary under CNCA for the articles of the board of directors. Also, ONCA specifi cally of the corporation to specify a fi xed number or disallows a director to send a delegate to a a minimum and maximum number of directors. directors’ meeting in his or her place. Like ONCA, the CNCA also refl ects an objective standard of care as opposed to a subjective In addition to the benefi ts that are afforded to standard of care for directors and offi cers. NFP corporations and their offi cers and directors as a result of ONCA, there are also additional While there are many similarities between CNCA rights and remedies that are available to members. and ONCA, there are also several provisions that Amongst other provisions, the Act dictates that are different. For example, ONCA specifi cally 1 the by-laws must set out the requirements to permits ex-offi cio directors , while CNCA disallows become a member of the corporation and also this practice and provides that directors must be that any termination of such membership must elected by ordinary resolution of members at the be done in good faith and in a fair and reasonable annual general meeting. Also, under CNCA, the manner. The OCA did not provide several of the by-laws may provide for decisions to be made by 2 - Minden Gross llp - Fall 2012 consensus as long as this term is defi ned, while 3. Directors, offi cers and members of NFP ONCA is silent on this point. corporations should seek advice about the appropriate time for continuance (in the case of A major difference between ONCA and CNCA CNCA corporations) and start thinking about is the fact that under CNCA, members may enter the changes that are needed to ensure that the into a unanimous members agreement to restrict corporation’s governance arrangements are the powers of the directors, similar to unanimous improved or updated to conform to the new shareholders agreements under both the CBCA legislation. and OBCA. In addition, CNCA provides for a derivative action remedy for members in certain situations. The holders of 5% of the votes may requisition a meeting of members. Conclusions Hartley R. Nathan, Q.C. Partner 1. This brief overview of CNCA and ONCA 416.369.4109 demonstrates the important changes to the [email protected] legislative framework of NFP corporations in Canada. With the enactment of these two Acts, Ira Stuchberry there will have been signifi cant harmonization Student at Law between the for-profi t and NFP corporations. 416.369.4331 [email protected] 2. Currently, NFP corporations are operating under outdated legislation that does not take Minden Gross LLP can assist corporations to transition into account modern corporate governance under CNCA and ONCA. Contact Hartley R. Nathan, practices. Q.C. ([email protected]) or Aaron Grubner ([email protected]) 1There are complicated mechanisms to “circumvent” this prohibition against ex-offi cio directors. We are pleased to announce that Eric appears regularly before the Toronto Eric N. Hoff stein has joined the fi rm Estates List. His broad experience in trust as Partner in the Litigation and Wills and and estate disputes includes passing of Estates groups. accounts, will challenges, guardianships, dependant relief applications, Eric joins us from Fraser Milner interpretations, variations, rectifi cations, Casgrain LLP. Eric practices corporate and related proceedings. and commercial litigation and dispute resolution with a special focus on trust, Eric’s experience in construction, real WELCOME! estate and charity/not-for-profi t law, and property and commercial leasing disputes construction and real property disputes. includes construction lien and trust Eric has appeared as counsel at all levels claims, professional negligence, product of Ontario courts and at the Supreme liability, mining, land rights, boundary, Court of Canada. and mortgage enforcement proceedings. Minden Gross llp - Fall 2012 - 3 Canadians and U.S. Real Estate n an individual’s death, an estate tax is imposed thereafter, and any US-situs assets in excess of this in the US on both its citizens (based on their amount will be subject to estate taxes at a rate of 35% worldwide estates) and non-citizens (to the in 2012 or 55% thereafter. extent that they hold certain US-situs assets, including real estate therein). For US citizens So what’s the impact of the estate tax on Canadians (whether they live in the US or abroad), the holding US real estate? Suppose Mr. Jackson has a Ofi rst $5.12 million of worldwide assets are exempt worldwide estate of $15 million and is considering from estate taxes, and worldwide assets in excess purchasing US real estate for $1.5 million or already of this amount are taxed at a rate of up to 35%. owns US real estate worth $1.5 million. If the US real Starting January 1, 2013, however, this exemption is estate is Mr. Jackson’s sole US-situs asset and if he scheduled to be reduced to $1 million and the estate holds it personally, on his death Mr. Jackson will be tax rate is scheduled to increase to up to 55%. This subject to estate taxes of roughly $345,800 in 2012; if is unless President Obama’s proposed change to the he dies in 2013 or beyond, however, his estate tax will estate tax regime becomes law (permanent exemption more than double to roughly $770,000. of $3.5 million and estate tax rate of up to 45%) Given the magnitude of those estate taxes, it’s no or the Republicans win the upcoming election and wonder that many Canadians have been seeking introduce their own estate tax plan.
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