DIRECTOR LIABILITY FOR NON-PROFIT ORGANIZATIONS AND CHARITIES

Transcription

1 DIRECTOR LIABILITY FOR NON-PROFIT ORGANIZATIONS AND CHARITIES DE JAGER VOLKENANT & COMPANY/LOEWEN KRUSE 7 th ANNUAL SEMINAR FOR CHARITIES AND NON-PROFIT ORGANIZATIONS Thursday November 8, 2007 SHERATON GUILDFORD HOTEL, SURREY, BC 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)

3 RECENT LEGAL ISSUES AND DEVELOPMENTS New Society Act in BC BCLI Consultation Paper August Tentative Recommendations Opportunity for public to respond February 29, 2008 Bringing into force of the Charitable Purposes Preservation Act Gifts of discrete purpose charitable property Given for a specified charitable purpose Identified with certainty by the donor Donated with intent to be kept separate and to be used exclusively for the specified charitable purpose Charities Advisory re Partisan Political Activities

4 INTRODUCTION - WHY ARE WE TALKING ABOUT DIRECTOR LIABILITY? Increase in Complexity Increase in Litigation Insurance Limitations Litigants and Their Lawyers Looking for Deep Pockets

5 OVERVIEW Duty of Care & Standard of Care Disclosure and Accountability Personal Liability of Directors in Specific Situations What Can an individual Director Do to Lower Risks What Can the Board Do to Lower Risks Corporate Due Diligence Charity Law Considerations Board Management Issues Insurance Considerations Property Issues Strategic Alliance Issues Employment & Volunteer Issues Fiscal Management Issues Asset Protection Strategies

6 Duty of Care & Standard of Care 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 Standard tied to personal knowledge and expertise

7 Disclosure and Accountability Disclosure A director of a society who is, directly or indirectly, interested in a proposed contract or transaction with the society must disclose fully and promptly the nature and extent of the interest to each of the other directors. Accountability A director [who is, directly or indirectly, interested in a proposed contract or transaction with the society] must account to the society for profit made as a consequence of the society entering or performing the proposed contract or transaction

8 Disclosure and Accountability unless the director discloses the interest, after the disclosure the proposed contract or transaction is approved by the directors, and the director abstains from voting on the approval of the proposed contract or transaction, or unless the contract or transaction was reasonable and fair to the society at the time it was entered into, and after full disclosure of the nature and extent of the interest in the contract or transaction it is approved by special resolution Director can not be included quorum of meeting approving contract unless bylaws specifically allow this

9 Personal Liability For Certain Acts and Omissions directors and officers may be personally liable for acts and omissions of the Society in certain circumstances. These include: Personal involvement in, or approval of, non-payment of income tax deductions and other amounts due under federal and provincial tax laws Non-payment of employee's wages or salaries, subject to statutory limitations Personal participation in any criminal or fraudulent act of the Society.

10 What Can an Individual Director Do to Lower the Risks? Attend Meetings Ask Questions Record Objections Resign? Transfer Personal Assets?

11 What Can a Board Do to Lower the Risks to Directors? Corporate Due Diligence Charity Law Considerations Board Management Issues Insurance Considerations Property Issues Strategic Alliance Issues Employment & Volunteer Issues Fiscal Management Issues Asset Protection Strategies

12 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 non-profit organization Constitution, Certificate of Incorporation, Letters Patent and Supplementary Letters Patent, if applicable All amendments to Constitution and Bylaws Membership covenant or mission statement, if applicable By-laws and resolutions Directors and members registers Copies of government filings Correspondence with the Registrar or Industry Canada

13 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 as applicable

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

15 BASIC CORPORATE ISSUES Are the objects in the Constitution appropriate for a non-profit organization Are the activities of the non-profit organization authorized by its objects? Does the Dissolution clause provide for distribution to its members?

16 BASIC CORPORATE ISSUES Review of Amendments to Certificate of Incorporation and Constitution Has there been a change of corporate name? Has there been a change of corporate objects? Overview of Bylaws Do provisions conflict with Constitution? Do provisions reflect changes to applicable corporate legislation? Are basic provisions of Bylaws adequate?

17 BASIC CORPORATE ISSUES Formation and Re-Organization Issues Was the initial corporate organization (or a subsequent re-organization) of the organization properly done? Was there a documented transfer of assets and liabilities on incorporation (or re-organization)? Are the records of board decisions and/or membership meetings complete? Was there adequate board and/or members authorization for indebtedness? Has there been proper maintenance of corporate records?

18 BASIC CORPORATE ISSUES Corporate filings and registrations BC Society Annual Reports Amendments to Constitution and Bylaws Change of Directors and Official Address Federal Non-Profit Corporation: Annual Summary (Form 3) Canada Does the non-profit organization operate in any other provinces? If so, there may need to be registration as an extra-provincial corporation in other provinces. Has there ever been loss of corporate status for failure to maintain government filings?

19 SPECIAL CONSIDERATIONS FOR CHARITIES Are Objects/Purposes Charitable? Are Activities Charitable? Are Filings with Charities Directorate Current? Disbursement Quota Compliance Fundraising and Related Business Issues Political Activities Issues

20 BOARD MANAGEMENT ISSUES Which group is in charge? does the defacto control of the organization rest with the board, a committee or executive staff? is board authority recognized by the membership? Establish clearly defined lines of control between the board and the executive staff Hold board meetings on a regular basis and ensure that directors regularly attend

21 BOARD MANAGEMENT ISSUES Consider establishing an independent audit committee to review financial statements and the auditor s report Ensure adequate communication of board responsibilities to existing and future board members Create a board binder of all corporate documents, as well as an explanation of the general operations of the corporation as a non-profit organization and the board of directors legal duties and liabilities Provide regular updates on changes in the law to board members

22 BOARD MANAGEMENT ISSUES Ensure that remuneration paid directly or indirectly to directors is fully disclosed to the full board of directors Ensure that the non-profit organization has adequately indemnified its directors and officers Be careful that the board does not delegate too much responsibility to executive staff by restricting itself to establishing policy decisions only without careful and ongoing monitoring and review

23 BOARD MANAGEMENT ISSUES Consider reducing the size of the board to limit the number of people who are exposed to liability as directors Make effective use of committees as an alternate to a large board of directors Consider implementing an advisory board to complement the board of directors without a corresponding exposure to liability Establish a comprehensive due diligence review process by creating and utilizing appropriate legal risk management checklists Consider establishing a risk management committee of the board

24 INSURANCE CONSIDERATIONS Maintain a historical record of insurance coverage in the event of a future claim Provide full disclosure of all risks to insurer to avoid denial of coverage and to raise the shield of insurance Request regular reports from insurance broker on existing coverage, exclusions from coverage and recommendations to enhance coverage Regularly review the adequacy and extent of general liability coverage and property insurance Ensure that there is directors and officers liability coverage in place and that it is reviewed on a regular basis

25 PROPERTY ISSUES Use of Property by Third Parties Consider potential liability exposure in permitting third parties to use organization s property Develop and implement a third party property use agreement with appropriate indemnification provisions Require evidence of liability insurance from third party users of facilities Charge appropriate fair market rental fees to third parties (charity requirement)

26 PROPERTY ISSUES Real Property Properly register interests in real property Identify and evaluate the extent of liability exposure for toxic property Consider property tax exemption opportunities Intellectual Property Consider registering any 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

27 Strategic Alliance Issues Strategic Alliances A strategic alliance is the collaboration of two or more organizations to accomplish a more effective and efficient outcome or result than could be accomplished independently Board must be vigilant to prevent the organization from using its property for activities outside its permitted objects Conduct Preliminary Assessment determine purpose of alliance and role of each party in it confirm that the objects of each organization permit the interaction; ensure the proposed activities are not ultra vires the objects of either organization determine impact of alliance on the mission and programs, donors, employees, facilities, legal commitments and obligations, governmental funding agencies, donor designated funds and legislative compliance

28 Strategic Alliances Due Diligence Review 1. Review constating documents of all parties to determine if proposed arrangement is permitted and the nature of any restrictions 2. Review policies of organizations to ensure they are compatible 3. Assess financial status of other parties 4. Assess and evaluate reputation of parties to arrangement 5. Conduct a human resources audit consider possible severance/termination or constructive dismissal claims 6. Assess compliance with federal and provincial legislation Trustee Act; Income Tax Act; Society Act; Employment Standards Act; Gaming legislation 7. Material Contracts Review 8. Insurance Review

29 EMPLOYMENT AND VOLUNTEER MATTERS Ensure that appropriate hiring policies and practices are in place for employees Ensure that written employment contracts are in place with key employees Review policy statements and/or manuals for employees as well as volunteers Establish discipline procedure for employees and/or volunteer members Be aware of comply with applicable statutory requirements including employment standards, human rights legislation, privacy legislation and occupational health and safety regulations

30 FISCAL MANAGEMENT ISSUES Ensure that all salaries, benefits and statutory deductions are being paid by the non-profit organization on a timely basis Consider Audited Financial Statements and ensure that Auditor s reports are acted upon Ensure full compliance with legislative requirements where investments are being offered to the public Ensure that investment policy is it in compliance with the bylaws and legislative requirements?

31 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

32 Thanks for Attending! QUESTIONS & DISCUSSION