The new British Columbia Societies Act will come into effect on November 28, 2016. Designed to better govern how societies are created and run in the province, the Act aims to increase societies’ flexibility while still protecting the public.
This new Act brings significant changes that all societies and board members should be familiar with. All B.C. societies will be required to file their bylaws and a new version of their constitution with the provincial corporate registry by November 28, 2018. Any existing bylaw inconsistent with the Act will cease to have effect.
This transition presents the perfect opportunity for societies to assess how they will be impacted, and update their bylaws and constitution accordingly.
Purpose & Form of the Society
Purpose of the Society
As a starting point, each society should review and identify its purpose. With the new legislation, a society will be restricted from carrying on any activities or exercising any powers contrary to its purpose or bylaws. Since societies are required to file a new constitution that includes their purpose, clearly establishing your society’s purpose early in the review process will be important.
Member Funded Societies
Member funded societies that carry out activities for the benefit of their members are now recognized as a distinct form of society. These societies only require one director, have no restrictions on the composition of their board of directors, and are to distribute society assets to their members upon winding up the society. To qualify, member funded societies are restricted in the amount of public donations and government funding they can receive; in total, the amount cannot be the greater of $20,000 or 10 per cent of their gross income from the preceding two years. As well, member funded societies cannot be a registered charity, a recipient of revenue collected by government as agent of the society, or a student or hospital society.
Major Changes for Directors
Previously, the decision of a society to remunerate its directors was at the society’s discretion. With the new Act, a Director may only be remunerated if the Societies bylaws permit it.
Public Disclosure of Remuneration
Director, employee and contractor remuneration from a society in excess of $75,000 per year must now be disclosed in the form of a note attached to the society’s financial statements. The note must include the position and title (for employees), the nature of the contractual relationship (for contractors), and total remuneration paid to the individual in the year. Only the 10 highest paid directors, employees and contractors meeting this threshold must be disclosed; individual names of employees and contractors do not have to be disclosed.
Directors’ Personal Liability & Available Defences
All society directors have a fiduciary duty to act in the best interests of their society. The Act clarifies this duty by imposing personal liability on a director who distributes a society’s money or other assets without proper authority.
While the new legislation increases a director’s potential liability, additional defences are provided. Directors may escape liability where it can be shown they reasonably, and in good faith, relied on a report made by other directors, senior managers or professionals. In cases where a director is found liable in respect of negligence, default, breach of duty or breach of trust, the court may relieve a director, either wholly or partly, if it appears the director has acted honestly and reasonably, and should be fairly excused.
If a director is required to defend her/his actions, the Act now permits directors to be entitled to indemnification for their legal expenses by a society if they are not found liable. Further, a complete level of indemnity is permitted if it is provided for in the bylaws.
Senior Manager Liability
Directors of a society may appoint one or more senior managers to exercise the directors’ authority in managing the activities or internal affairs of the society. A senior manager may be an employee (such as an executive director), contractor or volunteer of the society. By assuming this role, senior managers are now subject to the same level of liability as directors. It is important that anyone acting as a senior manager is informed of the duties and liabilities she/he is assuming.
Internal Governance Provisions
Special resolutions are required to implement fundamental changes to a society, including changing its name or bylaws. Under the former act, special resolutions of a society could only be passed with a 3/4-majority vote of its members. To increase flexibility, this threshold has been significantly lowered to a 2/3 majority. Also, societies may set their own special resolution threshold in their bylaws, if they so choose.
The new Act requires a minimum of three directors on a society’s board, one of whom must be a resident of B.C. In addition, direc- tors must be at least 18 years of age and capable of managing their affairs; they cannot be an undischarged bankrupt or con- victed of an offence involving fraud. While this limits who may be a director of a student society, directors may be as young as 16 if permitted by bylaw and if the majority of the board is at least 18 years old.
Previously, societies that incorporated unalterable provisions into their bylaws may have been forced to wind up and dissolve permanently if they could no longer operate under their own restraints. Now, all bylaws can be altered by special resolution, provided the society does not amend its bylaws to include a higher threshold.
Voting vs. Non-Voting Members
For a society under the former act to have more non-voting than voting members, approval from the societies registry was required. This requirement has now been removed, allowing a society to establish different membership categories and corresponding rights in its bylaws, provided at least one membership class maintains a right to vote.
Annual General Meetings
A society is no longer required to hold an annual general meeting in person, provided all voting members consent to the business of the AGM in writing through a unanimous resolution.
A society must now disclose any loan, guarantee, indemnity and provision of security to another entity through a note attached to their financial statements. The note must set out the nature and amount of the financial assistance, but the recipient does not need to be identified by name. This disclosure can be avoided entirely if the society is providing assistance in the ordinary course of its activities and it furthers the purpose of the society.
Borrowing Money & Other Debt Obligations
The ability of a society to raise funds has been greatly simplified by allowing directors to borrow funds at their own discretion. As well, societies may now issue bonds, debentures, notes and other debt instruments. This discretion may be limited by amending your society’s bylaws accordingly.
Final Steps of the Transition
Starting November 28, all B.C. societies will be required to file their transition application with the societies registry within two years. The transition application must set out certain information, including the society’s new constitution; a statement of directors and registered office address; and a bylaw package containing both old and new bylaws, with identification of any previously unalterable bylaws. While a basic transition does not require member approval, if a society wishes to alter its bylaws to comply with the new Act it must pass a special resolution using the new 2/3-majority standard. If a society does not transition within the two-year period, it will be considered defunct and at risk of being dissolved.
To ensure all of your society’s needs are met during this transition period and assist with your transition plan, please contact Roger or Alana.