New British Columbia Societies Act Mc Millan LLP

Overview 1. Why is the Society Act changing? 2. What does this change mean for BC Societies? 3. What are the significant changes under the new Act? 4. What opportunities do these changes present BC Societies with? 5. How (and when) do you transition an existing society to the new Act? 6. What if you want to change your bylaws? 7. What does this new Act mean for Societies after transition? mcmillan. ca l 2

1. Why is the Society Act Changing? § General Theme: § 2016 Societies Act replaces 1977 Society Act- this was outdated in many respects including corporate governance and technology. § The New Act intends to: § Increase governance flexibility for Societies • Publicly and Member Funded Societies • Lower Voting threshold for Special Resolutions (3/4 to 2/3) § Increase Transparency and Accountability for members and public § Improvements • Electronic filing; • Clarified record keeping requirements; • Lowers threshold for a special resolution; • Can hold electronic voting and meetings; • No more unalterable provisions. mcmillan. ca l 3

2. What does this change mean for BC Societies? § All existing societies must actively take steps to “transition” under the new Societies Act § These steps do not require that much work but do require attention and some consideration. The transition is required but relates more to the entry of information for each society into the new electronic database. § This process also provides an opportunity for the Societies to ensure that their governance documents accurately reflect the Society and how it is run. § Societies have until November 28, 2018 to transition but (with exceptions) the new Act will apply to all societies as of the in-force date (November 28, 2016). § Newly organized Societies will be formed under the new Societies Act. mcmillan. ca l 4

3. What are the significant changes under the new Act? § A. Format of Constating Documents (Constitution and Bylaws) § B. Special Resolution Threshold § C. Members § D. Directors § E. Meetings § F. Filings Moving Forward § G. Member Funded vs Non Member Funded mcmillan. ca l 5

A. Format of Constitution and Bylaws § Charter Documents § Retain Constitution and Bylaws, but shift their format. • Constitution used to set out the governance rules. • all provisions other than the Societies name and purpose(s) are now moved from the Constitution to the Bylaws. • Bylaws are easier to change, so this is intended to provide flexibility in the future. § No more “Unalterable Provisions” as you see in the current Constitutions. • Move these to Bylaws with a notation “previously unalterable”. • These are now alterable, unless the society is one that receives funding from BC Housing, or the society is a community care facility or designated recipient under the Provincial Sales Tax Act. § Can set a higher approval threshold for these previously unalterable provisions. § Both documents must be filed electronically mcmillan. ca l 6

A. Format of Constitution and Bylaws Cont’d § Bylaws must address: • Membership: admission, rights, obligations, classes; • Restrictions of activities and powers of society; • Meetings of members: quorum, proxies, voting methods; • Directors: election, appointment, terms. § The Act is generally drafted to provide for certain terms if the bylaws are permissive • For example: Proxies are permitted if the Bylaws expressly enable them. But if bylaws are silent, the default position is that proxies are not allowed. § If Bylaws are inconsistent with the new Act or regulations, they will have no effect. § New Act is in force, so any bylaw changes will require 2/3 member support. mcmillan. ca l 7

A. Format of Constitution and Bylaws Cont’d § Items that are customizable: • Limit public and member access to records • Set restrictions on loans • Set out detailed director qualifications • Set term of Directors (default – ends at next AGM) • Permit director remuneration and set thresholds • Permit board resolutions by written resolution (rather than in person) • Limit director indemnification and payment of expenses • Restrict use of senior managers • Establish multiple classes of membership • Increase the voting threshold on special resolutions from 66% • Set requisition and proposal thresholds • Permit proxy voting. mcmillan. ca l 8

B. Special Resolution Threshold Reduced § Old Act: § societies needed a to obtain 75% of votes cast at a duly called members meeting to pass a resolution. § New Act: § Default has been decreased to 66% (2/3). § Bylaws may provide a higher threshold. § Special resolutions become effective when passed (not filed). § If the current bylaws state a threshold of 75%, then that will apply when the Society transitions. • So, while you may change your bylaws to reduce threshold of a special resolution down to 66%, you will need 75% vote to do so. mcmillan. ca l 9

C. Members § Classes of Members § Old Act: Could have voting and non voting but would have to obtain Registry approval. § New Act: • May have different classes of members, provided the classes and their rights are set out in the bylaws. No Registry approval required. • Classes and Rights must be set out in bylaws § Requisitioning Meetings § Old Act: 10% of the voting members may requisition a general meeting. § New Act: • 10% of Members may require the board to call a meeting or less if set out in the Bylaws. • 5% of members + may request a specific matter be put on Agenda of AGM. • Must be in writing, 200 words or less. Not applicable to items that have been considered in past 2 meetings or similar proposals. Effective as accountability. mcmillan. ca l 10

C. Members Cont’d § Access to Records – Increased rights for members § Old Act: Provides members with access to their society’s corporate records, but allows the bylaws to restrict. § New Act: Provides member access to all corporate records, but allows the bylaws to restrict access to directors’ meeting records and accounting records. § Directors may restrict members’ access to register of members if access would be harmful to the society or a member. mcmillan. ca l 11

C. Members Cont’d § Remedies § Old Act: • Court may remedy the consequences of a corporate mistake (e. g. , an improperly called meeting). No other court orders are available. • Registrar may order a society to provide copies of financial statements. § New Act: • Court remedies/orders now include: remedying corporate mistakes ; remedies for members that claim to be oppressed by an action of the society; derivative actions (to defend or maintain an action on behalf of the society); compliance or restraining orders; orders correcting corporate records or declaring the contents of missing records. • Registrar may order a society to provide copies of financial statements, or any other corporate records to which a person has a right of access. mcmillan. ca l 12

D. Directors § Becoming a Director/ Qualifications § Old Act § Contained no qualifications for directors or senior managers. § Required at least 3 directors, one of whom must reside in BC. § Did not require that directors formally consent. § New Act § Ex Officio Directors may be appointed. (eg – not appointed but serve on board because they hold another office). Senior managers – New. Directors may appoint Senior manger to exercise the directors authority as a whole or with respect to a particular unit of the Society. § Must be at least 18 (does not apply until November 28, 2018). All appointed directors must consent. § Must still no have been convicted of an offense involving fraud in five years, be an undischarged bankrupt; or be found by a court to be incapable of managing their own affairs. May additional qualifications (eg- all members must be or have been firefighters) § Societies, other than “member-funded societies”, must have at least 3 directors, one of whom must be ordinarily resident in BC; “member-funded societies” need only have one director and none of the directors need be ordinarily resident. § As Employees- A majority of Directors must not also be employees or contractors. mcmillan. ca l 13

D. Directors Cont’d § Remuneration § Old Act: • Silent on remuneration, payment of or disclosure of payment to directors. § New Act: • No director remuneration unless permitted in bylaws (n/a until November 28, 2018). • Amounts must be disclosed in annual financial statements. • Reimbursements permitted unless bylaws or regulations restrict. § Resolutions § Old Act: • Had to pass resolutions at meetings. § New Act: • May be signed by directors rather than passed at in person meeting. These must be signed by all directors unless bylaws state a lesser number is sufficient. mcmillan. ca l 14

D. Directors Cont’d § Directors Actions: § Old Act: • Directors have fiduciary duty to act in the best interests of the society. • Indemnification for directors’ liability only permitted with approval of court. § New Act: • Fiduciary duty to act in the Society’s best interests with a view to its purposes. • Indemnification for Director’s liability is allowed without court approval but Society may restrict entitlement in bylaws. • May be personally liable for unauthorized distribution of Society’s money or assets. • May be relieved of liability of reasonably relied on professional advice or who acted honestly and reasonably. mcmillan. ca l 15

D. Directors Cont’d § Conflict of Interest: § Old Act: • Directors must disclose interests in proposed contracts. § New Act: • Must Disclose material interests in proposed or existing contracts or transactions or in a matter that might put a director’s interest in conflict with the directors’ duties to the society. • Disclosures must be recorded and accessible to members. mcmillan. ca l 16

E. Meetings § Electronic meetings and Notice: § Old Act: • Had to mail notice and hold actual meeting. § New Act: • May give electronic notice for meetings. • Electronic voting and meetings allowed. § AGM § Old Act: Had to actually hold AGM. Must be held within 15 months of last AGM. § New Act: • AGM need not actually be held if all voting members pass a consent resolution on the business. • AGM held once per year (no other timing restrictions). mcmillan. ca l 17

F. Filings Moving Forward § Can now file electronically: (Under old Act, had to file everything in paper). § Incorporation documents; § Transition application; § Annual filings; § Changes to Address or Board of Directors § New System will continuously refresh so that the online changes made by societies will immediately be updated online. § Record Keeping: § Old Act: • Was vague on record keeping requirements. § New Act: • Clarifies record keeping and access. • May keep records in physical or electronic form (provided appropriate precautions are taken). mcmillan. ca l 18

G. Different Treatments for of Classifications under New Act § Old Act: § Only societies that do not have a charitable purpose: • can, on their winding up, distribute assets without restriction, and • can convert to companies. § Otherwise, all societies are treated the same. § New Act: § New Concept that allows two levels of public transparency and accountability. § Member Funded vs Non Member Funded. § Member-funded societies are funded primarily by their own members to carry on activities for the benefit of those members. § A society cannot be a member-funded society if it receives significant public donations or government funding or is a type of society that is specifically not allowed to be a member-funded society under the Act or the regulations (a Charity). mcmillan. ca l 19

Member Funded or Non Member Funded § A Society may not be considered member funded if it: § is a registered charity; or § if it receives public donations or government funding over a certain amount, determined by the following formulas: • If the amount of public donations plus government funding received over a two -year period is $20, 000 or less, then a society CAN be a member-funded society; • If the amount is more than $20, 000 but is 10% or less of the society’s gross income for that same two-year period, the society CAN be a member-funded society; and • If the amount is more than $20, 000 and is more than 10% of the society’s gross income for that same two-year period, the society CANNOT be a memberfunded society. mcmillan. ca l 20

G. Member Funded vs Publically Funded § Member Funded- What are they? § Primarily funded by members and carry on activities for benefit of members, not the benefit of general public § Eg. Sports societies, professional groups, etc. NOT registered charities, student or hospital societies, or independent schools. § This will have to be set out in the new Constitution. § Consult Counsel to determine what kind of society you are. § How are they treated differently? § Member Funded Societies are given less strict requirements than those that are publically funded: • Less stringent governance standards • Fewer disclosure and accountability measures to the public • No Director residency requirement • No public right to assess financial statements (unless provided in Bylaws) • May, on winding up, distribute money and property to its members mcmillan. ca l 21

G. Member Funded vs Publically Funded Cont’d. § Non Member Funded § Subject to greater accountability, transparency and disclosure measures. Reasoning here is that these societies receive public resources and so should be subject to higher standards of governance, disclosure and transparency than those who do not. § Eg. Registered charities, those that cannot be member funded, and those that receive more than threshold of funding from public donations or government (> of $20, 000 and 10% of Society's gross income for preceding 2 financial years). • Public donations includes gifts to a society other than donations made by a voting member, director, senior manager, employee or spouse or relative of such person. • Government funding means grants, loans without interest or with interest substantially below market, or similar funding from federal, provincial, municipal, first nations governing bodies or an organization owned or controlled by or an agent of any of the above. § Must disclose Director Remuneration and most highly remunerated employees / contractors. § Public has a right to obtain copies of financial statements. § Minimum 3 Directors- at least one is a BC resident. § Majority of directors must not be employees or contractors. § On winding up, assets may only go to other public funded societies, registered charities, qualified donees, or a community service cooperative. mcmillan. ca l 22

H. Other § More court remedies/ orders available: under the New Act § remedying corporate mistakes (was in old act); oppression remedies; derivative actions, compliance or restraining orders; orders correcting corporate records. § Registrar may order a Society to provide financial statements or any other corporate records which person has a right to. § Incorporation process for new societies is simpler under the new Act mcmillan. ca l 23

4. What opportunities do these changes present BC Societies with? § This transition period provides Societies with an opportunity to: § Ensure the Society’s governance documents accurately reflect the way it operates; § Take advantage of certain flexible provisions in the Act, such as: • Classes of members; • Proxy and Voting provisions; • Director Remuneration and certain other Director limits; • Etc. § Review and become comfortable with the new Act, regulations, and the Society’s bylaws; § Refresh the Society’s purposes, structure, governance practices and governing documents. mcmillan. ca l 24

5. How (and when) do you transition to the new Act? § How: § Electronic Process- mostly a cut and paste or type job to enter the constitution (new shorter form) and bylaws (with provisions moved from Constitution), director information, and Society’s address into the fillable forms. § Submit online. § Prepare consolidated bylaws in an electronic format that consist of the society’s pre-transition bylaws (either unchanged or if changed, as approved by special resolution of members), and that include other provisions that previously appeared in the society’s constitution, including unalterable provisions. § Deadline to enter data into electronic database is November 28, 2018. § If miss this, the Society will be considered defunct and face subsequent risk of dissolution. § Basic Transition – (simply entering the information) does not require member approval but we do recommend a minimum of board authorization. § Member approval is required if the Society plans to substantially change its bylaws in the transition application. mcmillan. ca l 25

6. What does this mean for your Bylaws? § The new Act is now in force § Any provisions of a society’s current bylaws that are inconsistent with the new Act will cease to have effect as of November 28, 2016. § Consider reviewing the bylaws to see where this may apply. This is suggested for best practices and a risk management exercise. § If provisions are no longer effective, the statutory defaults may apply. § Cannot make any changes to Constitution or Bylaws until the Society transitions (but may be done at the same time) mcmillan. ca l 26

6. What does this mean for your Bylaws? Cont’d § Options for dealing with Bylaws: § 1. No Changes (Still have to move constitution terms into bylaws) • No special resolution to transition • Effectively accept risk of non compliant provisions and allow these bylaws to “fall out” • Risk could be low practically but certainly not best practices. § Adopt and File new Bylaws – custom or model. • Requires member approval of amendments by special resolution. • Consider whether the Model Bylaws are a good option (an updated version of the Schedule 1 bylaws). mcmillan. ca l 27

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