Bill 24-2015, the Societies Act, has been given First Reading in the Legislature. This Bill repeals the current Society Act, enacted in 1977, replacing it with something akin to a scaled back and simplified version of the BC Business Corporations Act. Local governments may interact with incorporated societies in a number of ways, including as providers of funding or facilities, or as stakeholders with representatives appointed to society boards of directors. As such, local governments should be aware of some of the impending changes to the legislation governing societies.
The Province’s 2014 White Paper gives some insight into the motivation behind the changes in the proposed Societies Act:
[It has] been updated and supplemented with new provisions that enhance flexibility by providing societies more internal governance options. Each society will have greater ability to use its own bylaws to structure itself in a way that meets its unique needs. At the same time, fundamental accountability provisions (such as the requirement for three directors and the provision of public access to financial statements) have been largely maintained for societies that perform a broader social function and rely on public financial support.
One significant change is the creation of “member-funded” societies. Under the proposed Societies Act, member-funded societies will be subject to less stringent reporting requirements than those applicable to publicly funded societies. Also, property belonging to member-funded societies will be distributed to the members upon dissolution, unlike publicly funded societies where property is distributed according to the rules in the legislation. While both publicly funded and member-funded societies will have the ability to carry on businesses to advance or support the purposes of the society, member-funded societies will have the additional ability to convert from a society to a for-profit corporation.
The primary distinction between a publicly funded society and a member-funded society is, as the names suggest, the source of funding. A society that qualifies as, and wishes only to be a member-funded society is permitted to include a statement within its constitution as follows:
This society is a member-funded society. It is funded primarily by its members to carry on activities for the benefit of its members. On its liquidation, this society may distribute its money and other property to its members.
A member-funded society cannot receive public donations and/or government funds in excess of the amount prescribed in the regulations, be a registered charity, or a student society under the College and Institute Act or University Act, be a designated recipient as defined in the Provincial Sales Tax Act, or a Hospital Society, or be in a class of societies that is prohibited from having the statement in its constitution by regulation. If at any time a member-funded society receives public donations or government funds in excess of the prescribed amount, it loses its status as a member-funded society, and must immediately change its constitution.
The concept of “government funding” encompasses funding from a large number of bodies, including federal, provincial, municipal and first nations governments and entities owned or controlled by those bodies, unless excluded by regulation. Funding is defined as grants, low or no-interest loans or similar funding. It is not clear if this would include other types of assistance such as leases at less than market value as there is no provision of “funds” by the public body.
Until the regulations are introduced, the full impact of the distinction between the types of societies will not be known. Of particular interest will be whether the regulations allow for some minimal level of public or government funding to member societies, since the ability for the Province to set a threshold by regulation suggests the approach may not be strictly black and white.
It is not only government funding that can affect a member-funded society’s status. Donations from sources other than members, directors, employees or their relatives count towards moving a society into the public funding reporting requirements. Although it is ultimately the responsibility of societies to manage their own affairs, local governments should be aware of the different types of societies and take this into account when making decisions related to societies, particularly funding and assistance decisions.
The creation of member-funded societies also raises an interesting question when it comes to assistance to business. Given that societies are permitted to carry on business in furtherance of their objects, and given that the objects of a member-funded society may not be directed towards any public benefit, it may be that member-funded societies fall within the meaning of “business” for purposes of the prohibition against assistance to business. Local governments should be sensitive to this issue, and may need to exercise due diligence by investigating funding recipients, and perhaps attaching conditions to grants so that they can be clawed back if circumstances demand it.
Turning to the more general provisions of the legislation, the proposed Societies Act continues the requirement for a society to have at least three directors, one of whom must be resident in BC, unless it is a member-funded society, which is only required to have one director who does not have to reside in BC. While the current legislation does not establish qualifications for directors, the proposed Societies Act does. Section 44 of the proposed Societies Act requires that a director must be legally capable of managing his or her affairs, must be 18 years of age, and must not have been convicted of certain offences, included fraud. The regulations may permit persons 16 and 17 years of age to be directors in certain circumstances. Local governments will need to be aware of these qualifications when appointing directors to societies, as well as any additional qualifications that may be established under society bylaws.
The current Society Act, and particularly section 25, has been interpreted as imposing fiduciary duties on directors to act in the best interests of the society. This was held by the BC Court of Appeal in the case of Schlenker v. Torgrimson, 2013 BCCA 9. The fiduciary duties of directors remain the same under the proposed Societies Act as they are under the current Society Act. The impact of the Schlenker decision in relation to fiduciary duties of society directors therefore remains unchanged. Where a local government is a member of a society, and where an elected official of that local government is appointed as a director of that society, that elected official may be seen to breach his or her fiduciary duties to the society if he or she participates in society decisions concerning the local government.
In addition, under the proposed Societies Act, directors will be subject to a set of conflict of interest provisions, similar to those in the Business Corporations Act, and not unlike some of those found in the Community Charter. While the current Society Act does contain conflict provisions, those in the proposed Societies Act go into greater detail. These include requirements for disclosure of conflicts, prohibitions against voting when in conflict, and the potential of having to repay profits to the society. Directors will also be subject to liability for improperly authorizing a distribution of society property or monies, if they are not subsequently recovered by the society. The defence of good faith reliance on professional advice will be available in some circumstances.
There are other changes of note. A society member may bring a court application for relief on the basis that the society is acting in a way that is oppressive or unfairly prejudicial towards one or more society members. The court has a wide discretion in the orders it may make. It is worth noting that the draft legislation included with the Province’s 2014 White Paper contained a provision authorizing the public to make court applications for orders against a society on specific grounds, including that the society was acting unlawfully or in a manner detrimental to the public interest. This provision has not been included in Bill 24.
Annual meetings must be held in every calendar year but the requirement that they be held within 15 months of the previous meeting has been removed. The proposed Societies Act also allows for a “deemed” AGM provided all members consent in writing to a resolution dealing with all matters that must be addressed at the AGM. Under the proposed Societies Act, a single individual may incorporate a society, while the current Society Act requires five persons to incorporate.
The proposed Societies Act is more modern and streamlined than the current legislation; however, it imposes new requirements and new responsibilities on societies, arguably making them something more like a corporation. Local governments should be aware of the provisions concerning directors, and their qualifications and liabilities, when appointing members to society boards. Local governments should also be aware of the differences between publicly funded and member-funded societies, and they should be sensitive to the implications of providing grants and other funding to these two different types of societies. More will be known about the true impact of these changes once regulations under the proposed Societies Act are introduced.