The New Societies Act: Whose Money Is It Anyway?
The new BC Societies Act (the “New Act”) comes into force as of November 28, 2016, replacing the current Society Act (the “Current Act”) and bringing a lot of changes to the law governing societies in British Columbia.
This is the last article in our three-part series on the New Act and what it means for BC societies. In our first article, we talked about the logistics of transitioning under the New Act. In our second article, we set out some of the major policy changes in the New Act and suggested possible bylaw amendments societies may want to consider in light of the legislative changes.
In our final article, we will be discussing a new concept created by the New Act: member-funded societies. I wanted to dedicate a post to this topic because being designated as a member-funded society as opposed to a publicly funded society can have a pretty significant impact on the operation and governance of a society. In addition, there are different procedural requirements depending on when a society chooses to become a member-funded society, so it is something that societies will definitely want to consider before they transition under the New Act.
Publicly Funded vs. Member-Funded Societies
Publicly funded societies include entities that receive public donations or government funding above a certain threshold. A member-funded society, however, is a society that is funded primarily by its own members to carry on activities for the benefit of its members. The category is meant to capture organizations like sports clubs or professional organizations, although other types of societies may meet the criteria.
To get technical, in order to become (and continue to be) a member-funded society, a society must not have received during the period that is two financial years immediately preceding its current financial year funding from the government or public donations in excess of the greater of: (a) $20,000 and (b) 10% of the society’s gross income.
Differences in Governance Standards
Given the private nature of its funding, member-funded societies will be subjected to less stringent standards for corporate governance, financial disclosure, and distribution of assets upon dissolution. Below, we’ve highlighted some of the main differences in the accountability measures between publicly funded societies and member-funded societies under the New Act:
1. Financial Statements: A publicly funded society must provide a member of the public access to its financial statements upon request whereas member-funded societies are not required to disclose their financial statements to members of the public.
2. Disclosure of Remuneration: A publicly funded society must set out in its financial statements the remuneration of its directors and ten most highly remunerated employees and contractors above a certain amount. Member funded societies are exempt from this requirement.
3. Number and Residency of Directors: A publicly funded society must have a minimum of three directors, one of whom is ordinarily resident in BC. A member-funded society is only required to have a minimum of one director, without any residency requirement.
4. Composition of Board: A majority of directors of a publicly funded society must not receive or be entitled to receive remuneration under contracts of employment or services other than remuneration for acting as a director. A member-funded society is exempt from this requirement.
5. Distribution of Assets upon Winding Up: Upon dissolution, a publicly funded society may only distribute assets to a "qualified recipient" such as a registered charity or other asset-locked entity. A member-funded society may distribute assets to any person on dissolution, including its members.
6. Conversion to Company: It is not possible for a publicly funded society to covert to a company; however, it is possible for a member-funded society to do so.
How to Become a Member-Funded Society
Becoming a member-funded society is a significant choice, so it needs to be authorized by a special resolution of the members. If a society qualifies as an eligible society and wishes to designate itself as a member-funded society, it can indicate this choice on its Transition Application by including a specific statement in its constitution. It’s important to note that adopting member-funded society status after transition requires obtaining a court order. So, it is recommended that societies consider this issue before transition to save on legal costs (and time).
One Note of Caution
Because the New Act allows member-funded societies to distribute their assets to their members on winding up, these societies may become disqualified from receiving certain benefits. For example, some types of government funding may require that societies be subject to the dissolution “asset lock” in order to be eligible for funding. Given this, even if a society is technically eligible to become a member-funded society, it may choose to not become designated as one. It is important for societies to consider the current and future needs of the society and its members before making the decision on whether to become a member-funded society.
This wraps up our three-part series on the new Societies Act. Remember, the New Act comes into force on November 28, 2016. If your society needs to make any changes to its Bylaws or would like to designate itself as a member-funded society, you'll need to get your members together to pass a special resolution – which, in my experience, can take some time! So if you haven’t already, start giving some thought to the issues we’ve discussed and set up a meeting with your society’s lawyer to discuss what the changes mean for your entity.