You Need to Change Your By-laws?
By-laws are legally binding rules that not-for-profits make to govern the way they function, including some key decision-making processes. This post reviews the general principles that apply when changing your bylaws.
We’re publishing it in part because the COVID-19 pandemic has pushed some organizations to quickly change their by-laws. For example, to allow their annual general meeting of members to be held remotely.
Government Changes on Virtual AGM and Bylaws During COVID
Regarding the specific question of remote meetings, Quebec has announced a temporary measure that allows assemblies and meetings to be held remotely for Quebec-incorporated not-for-profits even if their letters patent or by-laws prohibit it. Federally incorporated not-for-profits have options to avoid holding an in-person annual general meeting that includes applying to Corporations Canada for permission to delay calling such a meeting.)
Keep in mind that this post is general information and doesn’t cover every possible circumstance. When in doubt, seek legal advice!
Two Processes for Changing your Bylaws
There are two different processes to adopt, amend, or repeal a by-law, depending on what you are trying to change! The Quebec Companies Act and the federal Canada Not-for-profit Corporations Act require a more burdensome process for important issues like changing your constituting act (letters patent or articles) or dissolving the corporation. There is a less burdensome process for all other by-law changes.
The two laws align on many (though not all) of the issues which require a heavier process. As usual, it is important to know whether your nonprofit is incorporated under the Federal Act or the Quebec Act.
The First Process for Changing Your Bylaws
The first process is for adopting, amending or repealing by-laws that don’t touch on the more important issues. Organizations can follow the two-step process that’s generally outlined here (with some more details to follow):
- First, the board of directors adopts the by-law measure by ordinary resolution. The change takes effect immediately.
- Second, at a subsequent general meeting (AGM or SGM) the members vote to ratify the change that was previously adopted by the board, again by ordinary resolution. If the members fail to ratify the by-law change within the required time or vote against it, the change ceases to have effect from that moment. Otherwise, it continues to remain in effect indefinitely.
The specifics about when members vote on these changes differ if you are incorporated in Quebec or Federally. Check the last section of this document for details.
Second Process for Changing Your Bylaws
For changes that do touch on the more important issues, the process is heavier in three main ways:
- First, the change doesn’t enter into effect until after it’s been approved at a resolution at a general meeting. In other words, the board on its own cannot immediately change the rules.
- Second, for the general meeting resolution to pass it generally needs a larger majority, very often a two-thirds majority.
- In some cases, the change doesn’t even enter into effect until an additional formality is completed. This is notably the case when changing the organization’s governing act, in which case the change involves subsequently filing the change with the relevant companies office (Registraire des entreprises or Corporations Canada).
This more onerous process applies to, for example, dissolving the organization or changing its letters patent. If you are incorporated under the Quebec Act, changing the number of seats on the board must follow this heavier process, including making a filing with the Registraire des entreprises after the general meeting.
General Principles About Changing Bylaws
In either case, to be valid, the rules contained in by-laws must always be consistent with:
- the organization’s governing act (letters patent or articles) and
- with the law.
Example: Changing the Term Limits for Board Members
For example, although by-laws can validly define the duration that members of the boards of directors stay in office once elected, they cannot define that duration as being 20 years, since terms are limited to a maximum of four years for federal not-for-profits and two years for Quebec Companies Act not-for-profits.
Example: Changing the Mission Statement
Imagine a bylaw change modifying its mission statement to state that the organization aims to establish community libraries across the province. This will be ineffective if the organization’s letters patent or articles of incorporation say the organization’s purpose is to establish community libraries across Montreal. A not-for-profit’s activities are limited by its purposes as set out in its incorporating act, which takes precedence over its by-laws.
Example: Changing the date of your AGM
Lastly, a question that is coming up a lot in the context of the COVID-19 pandemic! Consider an organization whose by-laws require that its annual general meeting be held within four months of the end of its fiscal year. If the organization wants to delay its AGM beyond that point, the board can amend its by-laws to extend the period in which the AGM can be held. This change takes effect immediately, even before the AGM occurs.
However, it would cause some other issues. This approach can’t be used to indefinitely postpone an AGM, which the federal and Quebec governing laws require to be held annually (though the two define or describe exactly when this time limit ends differently). Quebec not-for-profits should also keep in mind that postponing their AGM beyond four months after their fiscal year end is likely to complicate presenting the financial statements. This is because the Companies Act requires a not-for-profit operating in Quebec to present statements including a balance sheet made up to a date not more than four months before the meeting, and an income and expense report for the period ending nearest to the date of the balance sheet.
In general, no matter what federal not-for-profits’ governing documents say, they have to hold their AGM no later than 6 months after their financial year-end but also not later than 15 months after their previous AGM. In the current context, though, federal not-for-profits should keep in mind the Corporations Canada page linked to earlier in this post. You can use that to request permission to postpone their AGM beyond this statutory time limit due to COVID-19.
Before moving forward, check whether the by-law amendments you want to make are limited by law or your letters patent.
Differences between Provincially and Federally Incorporated Organizations
Make sure you know whether you are a Quebec or a federal not-for-profit organization!
When changing the by-laws of a not-for-profit governed by Part III of the Quebec Companies Act, note that:
- Changes made using the simpler procedure must be ratified by the end of the organization’s next annual general meeting. The board is under no obligation to put the change forward for ratification at any special general meeting that may be held in the interim, although it can if it chooses to.
- Changes that follow the more onerous procedure include a change to the number of seats on the board.
- Changes that follow the more onerous procedure can only be made at a special general meeting. An organization that wants to avoid having separate annual and special meetings can just convene a single “annual and special general meeting”.
- For many changes that affect only officers (e.g. president or secretary) or employees, ratification by the members is not required. More specifically, ratification isn’t needed for issues the Companies Act defines as: “the appointment, functions, duties and removal of all officers, agents and employees of the company, the security to be given by them to the company, and their remuneration”.
- Members cannot put forward their own by-law changes, nor amend those put forward by the board. They can only vote to ratify or reject the board’s changes. In practice, members can sometimes refuse to ratify the board’s proposed measure unless the board makes amendments that they specify. You can then briefly adjourn the general meeting for long enough for the board to convene and pass the changes required by the members.
- Among the Companies Act rules that the by-laws cannot override are the process for changing the by-laws itself. For example, the by-laws can’t validly say that any future by-law changes must first be approved by some external entity. Similarly, a by-law provision stating that “the general assembly of members is sovereign” would contradict, among other things, the rule that only the board can propose changes to by-laws.
- By-law measures that abusively curtail the power of the members, even in ways that are not explicitly contrary to the Companies Act, also risk being held to be invalid
When changing the by-laws of a not-for-profit governed by the Canada Not-for-profit Act, note that:
- If you follow the less onerous of the two processes, those changes must be ratified at the next general meeting of members. This is irrespective of whether this is an annual or a special meeting.
- The members have the power to amend by-laws put forward by the board, or even to propose their own by-law measures without the board ever having put any forward, so long as they follow the procedures laid out by the Canada Not-for-profit Act. If a member does this, this includes taking the steps to have the change included in the notice of meeting that is sent out.
- You must submit all by-law changes to Corporations Canada within 12 months. Note that this is not a formality required for the by-laws to remain in force: they enter into effect before they are submitted. In fact, they remain in force even if the changes are never submitted (although in that case the organization exposes itself to other penalties).
- Note that the Act limits the ways that by-laws can establish both how notice of general meetings is given, as well as how and whether absent members can vote at these meetings. In both cases, the Act allows an organization to get permission from Corporations Canada to use some other approach in its by-laws.
- Certain changes to membership or membership rights fall into the category requiring the heavier process. In not-for-profits with multiple classes of members, the process of approving changes to these issues is even more onerous. Each class of members — even classes that don’t have the right to vote — must separately approve resolutions with an enhanced majority for the change to validly be made.
Legal Information for Non-Profits in Quebec
COCo maintains a large amount of legal information on other topics pertinent to nonprofits, which you can find here.
We also recommend checking out the Educaloi website for additional information!
Mark Phillips wrote this blog post! Mark is 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.