LEGAL ISSUES FOR INDEPENDENT SCHOOLS

Transcription

1 LEGAL ISSUES FOR INDEPENDENT SCHOOLS Christian School Finance, Business Management & Development Conference Wednesday March 9, 2011 CEDAR SPRINGS CHRISTIAN RETREAT CENTER KEN VOLKENANT De Jager Volkenant & Company

2 De Jager Volkenant & Company Charity & Non-Profit Organization Law Wills and Estates Corporate and Commercial Law Real Estate Development Employment and Human Rights Law Litigation and Mediation # Avenue Surrey, British Columbia, V3R 8P8 Tel: (604) Fax: (604) Toll Free:

3 RECENT LEGAL DEVELOPMENTS New Society Act in BC BCLI Consultation Paper August Tentative Recommendations Late 2011 to early 2012 New Canada Not-for-profit Corporations Act Spring 2011 New CRA Guidance - Canadian Registered Charities Carrying Out Activities Outside Canada Information Circular IC75-23 and Fluevog v. The Queen, October 12, 2010

4 Increase in Complexity Statutes & Regulations Multiple Jurisdictions Common Law Increase in Litigation Willingness to Sue Current Legal Climate for Independent Schools Increased Expectations Insurance Limitations Exclusions Litigants and Their Lawyers Looking for Deep Pockets

5 OVERVIEW IDENTIFY THE RISKS Basic Corporate Issues Basic Corporate Agreements Special Considerations for Charities Board Management Issues Insurance Considerations Property Issues Strategic Alliances Employment & Volunteer Issues Fiscal Management Issues Asset Protection Strategies

6 BASIC CORPORATE ISSUES Identify the existence and location of key organizational documents Develop an inventory of key documents Maintain central location for key documents Key organizational documents for an incorporated independent school Certificate of Incorporation, Constitution, Letters Patent and supplementary letters patent, if applicable All amendments to Constitution and Bylaws Membership covenants, mission statements, statements of guiding principles Directors and members registers Copies of government filings Correspondence with the Registrar or Industry Canada

7 BASIC CORPORATE ISSUES Other key legal documents Leases, deeds and mortgages Agency, association and joint venture agreements License agreements Business name, trade-marks and domain names Policy statements Insurance policies Financial Statements Communications with Members - newsletters etc. Other governance, financial and business records Charities Application, Notification Letter, Charities returns and correspondence

8 BASIC CORPORATE ISSUES Review of Certificate of Incorporation and Constitution - is the name in the Certificate the name used by the school? Proper Use of Corporate Name: ABC Independent School Society Per: (Signature of Officer) followed by the Signatory's title, such as "Director and Secretary".

9 BASIC CORPORATE ISSUES Are the objects in the Constitution appropriate for a non-profit organization Are the objects charitable? Are the activities of the school authorized by its objects? Is there a dissolution clause and is it complementary to the objects Alterable and Unalterable provisions

10 BASIC CORPORATE ISSUES Overview of Bylaws Do provisions conflict with Constitution? Are basic provisions of Bylaws adequate? Member qualification requirements Removal procedures for members and directors Classes of Members Notice and Meeting Options Default Rules of Order for Meetings Directors roles, offices and roles of officers & executive authority Indemnification of Directors Dispute resolution provisions Restrictions on inspection of documents

11 BASIC CORPORATE ISSUES Corporate filings and registrations BC Society Annual Reports Amendments to Constitution and Bylaws Change of Directors and Official Address Special Resolutions and Borrowing Federal Non-Profit Corporation: Annual Summary (Form 3) Canada Has there ever been loss of corporate status for failure to maintain government filings? Escheat Act implications

12 BASIC CORPORATE AGREEMENTS General Agreements & General Principles Employment Agreements Financing and Security Agreements Property Development and Construction Agreements Property Acquisition & Use Agreements Strategic Alliance Agreements

13 BASIC CORPORATE AGREEMENTS General Agreements & General Principles Written Agreements Be Careful with Precedents Mixing and Matching Precedents Watch Definitions Assignment and Enurement Liberal use of Reasonable Conflict Resolution Mediation and Arbitration Renewal and Termination Provisions Employment Agreements Expert Advice Recommended Express Faith requirements

14 BASIC CORPORATE AGREEMENTS Financing and Security Agreements Banking Agreements Signing officers Loan Commitments/Agreements Bank Fees, Interest Calculation, Legal Costs Security & Security Release provisions Guarantees & Indemnities Prepayment Conditions Events of Default Mortgages Collateral vs. specific Subsequent mortgages General Security Agreements (GSA s) & Assignments of Rent Ordinary Course exception

15 BASIC CORPORATE AGREEMENTS Property Development and Construction Agreements Expert advice recommended Standard Form Architect, Consultant and General Contractor Agreements Builders Lien requirements and hold backs Statutory Rights of Way, Easements and Covenants

16 BASIC CORPORATE AGREEMENTS Property Acquisition & Use Agreements Standard Form Real Estate Contracts Offers to Lease and Lease Agreements Terms and renewal rights Operating Cost Exclusions: Structural repairs & replacements Capital Repairs (HVAC, Roof & Energy Conservation Equipment) Depreciation, amortization & interest Landlord Taxes Landlord liability exclusions Options to Purchase

17 CHARITY COMPLIANCE ISSUES Are Objects Charitable? Advancement of Education Advancement of Religion (new definition pending) Relief of Poverty Are Activities Charitable? Are Filings with Charities Directorate Current? Disbursement Quota (recent changes) New Fundraising Guidance (2009) Fundraising for Mission Trips see New Foreign Activities Guidance Related Business Issues Political Activities Issues

18 BOARD MANAGEMENT ISSUES Is the school able to identify which group is in charge? where does the defacto control of the school lie? Is it with a board, a committee or executive staff? is board authority recognized by the membership? Are there clearly defined lines of control between the board and the executive staff? Does the board meet on a regular basis and do directors regularly attend?

19 BOARD MANAGEMENT ISSUES Is there an independent audit committee to review financial statements and the auditor s report? Is there adequate communication of board responsibilities to existing and future board members? board binder of all corporate documents, as well as an explanation of the general operations of the school as a non-profit organization and charity and the board of directors legal duties and liabilities Need to provide regular updates on changes in the law to board members

20 BOARD MANAGEMENT ISSUES Duty of Care act honestly and in good faith and in the best interests of the society Standard of Care a director must exercise the care, diligence and skill of a reasonably prudent person, in exercising the powers and performing the functions as a director Minimum standard Due Diligence Get Good Advice!

21 BOARD MANAGEMENT ISSUES Do any directors receive direct or indirect remuneration from the school that has not been disclosed to the full board of directors? Has the school organization adequately indemnified its directors and officers? Has the board authorized the school to acquire directors and officers liability insurance? Has the board delegated too much responsibility to executive staff?

22 BOARD MANAGEMENT ISSUES Should the school consider reducing the size of the board to limit the number of people who are exposed to liability as directors? Is the school effectively making use of committees as an alternate to a large board of directors? Should the school consider implementing an advisory board to complement the board of directors without a corresponding exposure to liability? Has the school established a comprehensive due diligence review process by establishing and utilizing appropriate legal risk management checklists? Has a risk management committee of the board been established?

23 INSURANCE CONSIDERATIONS Has the school maintained a historical record of its insurance coverage in the event of a future claim? Is there occurrence-based or claims-made insurance coverage for sexual abuse? Has the school provided full disclosure of all risks to its insurer to avoid denial of coverage? Does the school request regular reports from its insurance broker on existing coverage, exclusions from coverage and recommendations to enhance coverage? Is there a regular review of the adequacy and extent of general liability coverage and property insurance? Is there directors and officers liability coverage in place and is it reviewed on a regular basis?

24 PROPERTY ISSUES Use of Property by Third Parties Is the school aware of the potential liability exposure in permitting third parties to use its property? Has the school developed and implemented a third party property use agreement with appropriate indemnification? Does the school require evidence of liability insurance from third party users of its facilities? Does the school charge appropriate fair market rental fees to third parties?

25 PROPERTY ISSUES Real Estate Has the school properly registered its interests in real property? Has the school addressed and rectified encroachments with neighbouring lands? Are municipal zoning and legal non-conforming uses being complied with? Has the school identified and evaluated the extent of liability exposure for environmental issues? Have property tax exemption opportunities been considered?

26 Intellectual Property PROPERTY ISSUES Does the school need to register any of its key names and/or logos as trade-marks? Identify trade-marks Protect trade-marks by registration Ensure that any third parties using trade-marks enter into a trade-mark licensing agreement Has the school protected its trade-marks by securing multiple corresponding domain names?

27 Strategic Alliances Definition: The collaboration of two or more organizations to accomplish a more effective and efficient outcome or result than if done independently need not be limited to similar purpose organizations however the board must be vigilant to prevent the use of its property for activities outside its permitted objects

28 Strategic Alliances Administrative Administrative functions for one organization undertaken by another entity Operational Combination of all or portions of the operational activities to accomplish the purposes of all participants more effectively and efficiently Amalgamation The contractual arrangement for two or more organizations to consolidate into one entity to carry on the common purpose

29 Strategic Alliances Examples of Administrative Alliances sharing of leased facilities co-ownership of building co-ownership of other significant assets provision of accounting and other management services sharing of personnel shared office manager, professional fund-raiser unified fund-raising campaign between organizations

30 Strategic Alliances Considerations for Administrative Alliances details of arrangement to be set out in contract elements to be considered in contract include: degree of involvement of each organization in decisionmaking and control procedure for dispute resolution ownership of assets extent to which either party can bind the other duties and responsibilities of each of the parties remedies in the even of default mutual indemnities between parties rights to terminate in event of default or on written notice rights of parties on termination

31 Strategic Alliances Operational Alliances an arrangement for several organizations to carry on activities jointly for a defined or indeterminate period of time usually established by contract in most cases, each participant is autonomous nature of the alliance determines if parties must be Canadian registered charities

32 Strategic Alliances Types of Operational Alliances Principal Agency Arrangements not a true alliance in that the agent is carrying on the activities of the principal often used when agent is able to more effectively and affordably carry out specific programs or activities for the charity than the charity can do on its own a formal agreement should be in place which clearly demonstrates that direction, control and supervision of the funds and the activities to which they are applied rests with the principal

33 Types of Operational Alliances Cooperative Partnerships parties to the agreement have similar purpose and desire to carry on an activity together each party to the agreement assumes responsibility for one aspect of the project contribution of each party generally reflects its area of knowledge, available skills and resource availability a formal agreement sets out terms and conditions under which the parties will cooperate in carrying out a define project protocol established for making project decisions by the participants and for resolving disputes Rights to terminate, entitlement of either party to continue with project and the manner in which assets are dealt with on termination are defined in the agreement

34 Types of Operational Alliances JOINT VENTURES Joint Venture Corporation limited liability protection & formalized organizational structure establishes a greater sense of permanence for long-term projects and ministries Joint Venture Agreement contractual arrangement between organizations to pool resources to carry out an activity to accomplish a charitable purpose joint venture agreement should be in writing setting out the contractual commitments of the parties to the agreement to the co-funded activities provide that the costs and consequences of inappropriate actions, negligent acts or wilful misconduct by one party should be attributable to that party

35 Strategic Alliances Amalgamation a contractual arrangement between the organizations to consolidate into one amalgamation is the fusion of the amalgamating entities such that the amalgamated entity has all the property, rights, privileges and franchises and is subject to the contracts, liabilities, disabilities, debts and obligations of each of the amalgamating entities requires the necessary due diligence of all the amalgamating entities to carefully review all such duties, responsibilities, liabilities and potential liabilities Society Act amalgamations

36 Strategic Alliances Dissolution dissolve one of the two entities and carry on its activity in the other corporation can also dissolve both corporations and carry on their activities in a new entity referred to as merger by dissolution an analysis of the liabilities of the organizations and their assets assist in determining method to be used at the time of dissolution, there must be no debts or liabilities dissolution does not release the corporation or free its assets from claims arising from a legal action commenced prior to the dissolution

37 Strategic Alliances Appropriateness of schools combining their efforts with other organizations depends on many factors including: Good Stewardship of Resources Competition for donor support Availability of qualified staff and volunteers Desire for autonomy Mission and vision statements of the organizations Similarity of activities of other organizations Board commitment, ability and expectations Liability and Risk Management issues In the right circumstances, and with due diligence and appropriate legal structures, strategic alliances can produce a more effective and vibrant organization

38 EMPLOYMENT AND VOLUNTEER MATTERS Has the school developed appropriate hiring policies and practices for its employees? Has the school established written employment contracts with key employees? Are there policy statements and/or manuals for employees as well as volunteers? Is there an established discipline procedure for employees and/or volunteer members? Is the school aware of and complying with applicable statutory requirements, such as employment standards, human rights legislation, privacy legislation and occupational health and safety prerequisites

39 FISCAL MANAGEMENT ISSUES Are all salaries, benefits and statutory deductions being paid by the school on a timely basis? Are Financial Statements Audited and are Auditor s reports acted upon Is there an investment policy and is it in compliance with the bylaws and legislative requirements?

40 FISCAL MANAGEMENT ISSUES Are investments being offered to the public without full disclosure to potential investors? Charities may seek investments because: Donation opportunities exhausted Borrowing from institutional lenders unavailable Cost of borrowing from institutional lenders is excessive Large capital projects

41 FISCAL MANAGEMENT ISSUES Types of Investments Unsecured debt instruments such as promissory notes Unsecured loan certificates and guaranteed loan certificates Debentures, secured and unsecured Bonds, secured and unsecured INVESTMENT PROGRAMS OFFERED BY CHARITIES INCLUDING THE ABOVE LIKELY CONSTITUTE THE SALE OF SECURITIES AND ARE THEREFORE LIKELY SUBJECT TO THE SECURITIES ACT

42 FISCAL MANAGEMENT ISSUES General Overview of BC Securities Legislation: "security" includes a bond, debenture, note or other evidence of indebtedness, share, stock, unit, unit certificate, certificate of share or interest Exemption from Registration under the Act and from preparing and filing a Prospectus for organizations organized exclusively for educational, benevolent, fraternal, charitable, religious or recreational purposes and not for profit, if: no part of the net earnings accrue to the benefit of a security holder, no commission or other remuneration is paid in connection with the sale of the securities, in the case of a trade made by the issuer, an information statement in the required form is delivered to the purchaser before an agreement of purchase and sale is entered into in the case of a trade made by the issuer, the information statement is filed not later than 10 days after the trade

43 FISCAL MANAGEMENT ISSUES Sale of Investments - Exposure to Liability: Failure to advise investors of unregulated nature of securities being offered Failure to disclose reasonable details of investment such as Purposes for which monies are being raised Explaining fully the security being offered Explaining the nature of the risks associated with the investments Explaining Investment Returns accurately False or misleading statements about financial strength of charity Suggesting Investment are secure when they are not Failure to recommend that potential investor first obtain independent tax and legal advice Failure to Disclose actual or pending financial crisis

44 Asset Protection Strategies Operational Due Diligence Insurance Incorporation Multiple Incorporations Consider separating particularly risky aspects of operations Consider separating independent operations within a single entity Consider legal separations where there are multiple locations

45 Thank you for Attending! QUESTIONS? & DISCUSSION