We often get questions about how to change the size of a Board of Directors for nonprofits. Indeed, we ourselves had lots of questions on this topic earlier this year, when we increased the number of seats on our Board to reflect the growth of our organization. To help nonprofits manage this process more easily, we asked a “lawyer-friend” of COCo’s to write up this helpful guide to navigating this process. As always, this is not legal advice!
Before you dive in, make sure you are clear on:
- Whether your not-for-profit is incorporated under Quebec’s Companies Act (with the Registraire des Entreprises du Québec) or the Canada Not-for-Profit Corporations Act (with Corporations Canada). The procedures are different for each.
- That you understand the difference between by-laws and “lettres patentes” (in Quebec) or “articles” (federally)
The Process in 3 Simple Steps
There are generally three basic steps to changing the number of seats on your Board.
- Your Board of Directors adopts a by-law to add or remove seats
- Your members approve that decision by a two-thirds majority at a Special General Meeting
- You file proof of that decision with either the Registraire des Entreprises du Quebec (if you are incorporated in Quebec) or Corporations Canada (if you are incorporated Federally).
As simple as that seems, when we went through this process, there were moments where it started to feel complicated. Here are a few things to keep in mind as you move through this process.
5 Things to Keep in Mind as You Change the Size of Your NonProfit Board
Be careful about establishing a “range” of board size in your by-laws.
It’s not uncommon to come across non-profit by-laws that say, for example, “the board will have at least three and at most six directors”. But a range in the size of the board can’t legally be established this way for nonprofits incorporated in Quebec. Nonprofits incorporated under the Quebec Companies Act can only have a specific number of seats on their board. In addition, this number must be fixed in your letters patent, and not just in the bylaws of the organization. This also means that whenever you change the number of seats on your Board, you must change your letters patent as well as your by-laws.
Non-profits incorporated under the Quebec Companies Act can achieve some of the advantages of the board size “range” by treating the seats on their board as a de facto maximum, and leaving seats vacant when they want to operate with fewer directors. The same strategy can sometimes also be used to work-around the requirement (in the Quebec Companies Act) that the board must have at least three seats, for example, by allowing one of them to remain vacant. If you choose to do this, it will be especially important to consider quorum, which we address next.
Non-profits incorporated under the Canada Not-for-Profit Corporations Act, in contrast, are entitled to establish a board size range. In their case, this must be done through their articles, not their by-laws. After the range is established in the articles, meetings of members (AGMs and SGMs) can then fix the number of directors within that range through an ordinary resolution. Meetings of members can also delegate this power to the board itself, again by ordinary resolution.
When changing the board size, also review quorum
If you are changing the size of your board or considering the possibility of leaving seats on the board vacant, think about whether your rule about quorum should also be changed.
If your bylaws have nothing to say about your quorum for board meetings, the quorum for a board meeting is:
- A majority of the directors currently holding office, for a non-profit incorporated under the Quebec Companies Act; or
- A majority of the number of directors, or minimum number of directors required by the articles, for non-profits incorporated under the Canada Not-for-Profit Corporations Act.
A quorum of directors must be present in order for a meeting to validly take place and for the decisions adopted to have any effect. A quorum that is too high can paralyze the board, or even organization, by making it difficult or nearly impossible to make any decisions. For example, if quorum is six directors, the board should not be shrunk to five seats. On the other hand, a quorum that is too low puts the organization at ongoing risk of being hijacked by a small group or an individual who don’t represent the membership.
If the members adopt the strategy mentioned earlier for nonprofits registered under the Quebec Companies Act of leaving a seat vacant to allow only two directors to sit on the board, you should consider how decisions will be made when these two directors disagree. This issue could also apply to organizations where there is an even number of directors because seats are left vacant. In both cases, the chair gets a second tie-breaking vote, but the issue becomes increasingly severe when there are only two people because then the chair effectively has control of the organization alone, even though they’re only one of two voices on the board.
Consider the effect on the distribution of decision-making power
The size and composition of a Board can have an impact on the distribution of power in an organization. If you’d like to ensure specific representation on your board, you could choose to do things like:
- Have your by-laws require that some seats on the board are to be elected from a certain category of members. For example, an organization that represents youth could require that a minimum of three seats on the board of directors must be filled by people under twenty-two years of age.
- Have your by-laws require that the board as a whole represent certain regions or groups. For example, an organization that works in five Montreal neighbourhoods could require that each of five seats on the board must be occupied by people who live (or work, etc.) in each of those five neighbourhoods.
Federally incorporated organizations are permitted to have the board make decisions by consensus. In this case, the by-laws must indicate how decisions will be put to a vote when consensus cannot be reached.
Would the change of board size you are considering affect any of these issues at your organization?
You need to submit notice to the companies office before a board seat is actually added.
If you’re incorporated under the Quebec Companies Act, changing the size of your board only takes effect after you submit the organization’s decision to do so to the Registraire des entreprises du Québec (REQ). If the board size is the only change you’re making, it is simplest to use the form they provide for this and there is no fee. The REQ’s form incorporates a template for the resolution. The change in board size officially takes place the moment you file the form (rather than when the REQ publishes the change on the public register, or when the members make the decision).
As the form itself makes clear, your board must first adopt a by-law to add or remove seats, then a special general meeting (SGM) of members (which can be held jointly with your AGM, when convenient) must approve that decision by a two-thirds majority resolution. Only then do you use this form to inform the REQ of this decision.
If you’re incorporated federally under the Canada Not-for-Profit Corporations Act, and your new board size falls outside the minimum and maximum number of seats set by your articles, you have to request an amendment from Corporations Canada. This similarly requires a resolution at a meeting of members passed by a two-thirds majority. Changes to your articles generally take effect on the date shown on the certificate of amendment that Corporations Canada issues in response to the request, although see the next point. Note that decreasing the maximum in this way cannot shorten the term of an incumbent director.
Avoid the need to hold multiple meetings of your members
As we said above, for organizations registered under the Quebec Companies Act, the size of your board only changes after the meeting of members has taken place to approve that change, and after you have submitted the proper paperwork to the REQ. However, this poses a problem for organizations, because elections to the Board of Directors usually happen at annual or special general meetings. This means that, in theory, an organization would have to make the change to their board size at one general or special meeting of the members, file the paperwork, and then hold a second meeting of the members to elect people to those seats. To avoid this situation, Paul Martel’s guide to nonprofit administrators in Quebec recommends that Quebec-incorporated non-profits elect their additional directors at the same general meeting as the one at which the additional seats are approved, but to specify in the resolution to elect them that the beginning of their term of office as directors is suspended, and that it only begins when the changed board size actually enters into effect.
A rule in the federal Canada Not-for-Profit Corporations Act addresses this situation explicitly by allowing additional directors to be elected immediately without the need for the members to suspend the beginning of the directors’ term. The organization still has an obligation to notify Corporations Canada of the change.
Legal Information for Non-Profits in Quebec
This blog post was written by Mark Phillips, a lawyer who advises non-profits and charities. He can be reached at firstname.lastname@example.org. Nothing in this blog post is legal advice: please consult a lawyer to receive advice regarding your organization’s situation.