Charity and NFP Legislation
Roles and Qualifications of Directors of Charities and Nonprofits
Understanding the roles and responsibilities of Not-for-profit directors is crucial for anyone involved in a NFP corporation, whether you're a member, an employee, or a potential director. This blog will break down the key duties, qualifications, and processes associated with corporate directors, making it easy to understand even for someone who is not trained as a lawyer.
Duty to Manage or Supervise Management
According to Section 124 of the Canada Not-for-profit Corporations Act (S.C. 2009, c. 23), the directors of a corporation are responsible for managing or supervising the management of the corporation's activities and affairs. This means they oversee everything the corporation does, ensuring it operates smoothly and meets its goals.
How Many Directors?
Section 125 of the above-referenced act states that a corporation must have at least one director (note that many provinces require 3 directors). However, if the corporation is a "soliciting corporation" (meaning it recieves a certain amount of money from public donations or the government), it must have at least three directors. Importantly, at least two of these directors must not be officers or employees of the corporation, ensuring some level of independence in decision-making.
Qualifications of Directors
Not everyone can be a director. Section 126 outlines who is disqualified from being a director:
- Age: Must be at least 18 years old.
- Capability: Must not be incapable, which generally means they need to be mentally capable of managing the role.
- Individual Status: Must be an individual, not another corporation or entity.
- Bankruptcy: Must not have the status of a bankrupt.
Interestingly, a director doesn't need to be a member of the corporation unless the corporation's bylaws state otherwise. Also, no one can act as an alternate for an absent director in meetings.
What Happens After Incorporation?
Organization Meeting
Once a corporation is officially formed, the directors must hold an initial meeting. According to Section 127, during this meeting, they can:
- Form bylaws.
- Adopt forms for debt obligation certificates and corporate records.
- Authorize issuing debt obligations.
- Appoint officers.
- Appoint a public accountant until the first annual members' meeting.
- Issue memberships.
- Make banking arrangements.
- Handle any other necessary business.
This meeting is crucial for setting the foundation of the corporation's operations.
Notifying the Director and Terms of Office
Notice of Directors
When the articles of incorporation are sent, a notice of directors must also be sent to the Director in a specific form. The directors named in this notice hold office from the time the certificate of incorporation is issued until the first members' meeting (Section 128).
Election of Directors
At each annual meeting where an election is required, members elect directors for terms that expire within a prescribed period. These terms don't all have to be the same length, providing flexibility in managing the board's composition.
Handling Vacancies and Resignations
Vacancies
If there is a vacancy because the meeting didn't elect the required number of directors, the remaining directors can continue to manage the corporation if they have enough members for a quorum.
Resignation and Removal
Directors cease to hold office if they die, resign, are removed, or become disqualified. A director's resignation is effective once sent to the corporation or at a specified later time. Members can remove any director through a resolution at a special meeting. If a vacancy arises due to a director's removal, it can be filled at the same meeting or later (Section 129).
Special Cases for Directors
Special Provisions
If all directors resign or are removed without replacements, anyone managing or supervising the corporation's activities is considered a director, except for certain professionals and officers working under direction.
Understanding the roles and responsibilities of corporate directors is vital for ensuring good governance and compliance. Directors play a key role in overseeing and managing the corporation's affairs, and their qualifications, election, and removal processes are clearly defined to maintain a fair and effective board. By grasping these concepts, you can better appreciate the importance of directors in the corporate world.
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